During the Great Depression, about 50 % of all US banks failed. A reason for so

Question

During the Great Depression, about 50 % of all US banks failed. A reason for so many bank failures was: Too many depositors rushed to withdraw their deposits all at once and this created a huge strain on the banks. Many borrowers found themselves unable to repay their loans on time, thus making it difficult for banks to create new loans or meet their obligations to depositors. Most banks at the time were not members of the federal reserve banking system, and therefore their lending practices were not regulated. Many banks had lent out all of their depositors' money. President Franklin Roosevelt ordered the Fed to reduce the supply of money and restrain lending at a time when (many banks needed to borrow money to tide themselves over until depositors finally calmed down & borrowers had a chance to repay some money. A, B. C & D above are all reasons why so many banks failed during the Great Depression.

Explanation / Answer

The correct option is E

Because, bank panic is a situation when the depositors lose confidence in the banking system and start withdrawing their deposits from the banks all of a sudden. This usually starts with bank failure in one or two banks and this failure spreads to the other banks leading to a series of bank failures one after the other, like the ripple effect. During the Great Depression, FDR ordered the Fed to reduced the money supply which created investment discouragement

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