Rus Articles Journal

What do we know about bank panic of 1930 - 1933?

In the very first months of the Great depression went bankrupt several banks, weak and unstable on the financial state. At once rumors as if clients of these banks lost all the uninsured deposits spread, and then many were captured by concern: whether there will be no something similar and to other banks.

Investors were frightened that in their banks there is any more no money which they there once invested. Certainly, in a fragmentary reserve banking system quite so also occurs. Investors movable by fear in a mass order began to withdraw the deposits - to withdraw from account cash. They sought to receive the money back before those finally thaw.

This attack on " banks; resulted in bankruptcy of the banks which were once holding quite strong financial position. In three years more than 9 thousand banks were wrecked.

The mass translation of check deposits to cash which captured the country in 1930 - 1933 led to reduction of the offer of money in economy. This statement is surprising as the checks drawn under cash reduce the volume of deposits on termless deposits and increase by the same sum quantity of cash on hands.

How the offer of cash in that case can be reduced? we Will assume

that the population started withdrawing from the account 10 billion a dale. The sizes of termless deposits will be reduced by the same 10 billion a dale at once., the mass of money on hands to increase by the same sum.

But here we are waited by a trap. Let`s assume that the reserve rate (norm) makes 20%, cash of 10 billion a dale. supported when they were placed in bank, 50 billion a dale., 10 billion dale. - in the form of deposits, plus 40 billion more a dale., created by loans. Withdrawal of 10 billion dale. forced banks to reduce crediting (and consequently, and the sums of demand deposits) by 40 billion a dale., to support the established reserve norm. To put it briefly, there is a destruction of 40 billion additional deposit money. It also occurred at the beginning of 30 - x years.

This reusable compression termless deposits helps banks to meet further requirements about withdrawal of money. For receiving bigger quantity of money banks sold the state securities. Sale of the state securities by banks, respectively, reduces the offer of money.

Buyers show checks in exchange for securities, reducing thereby the demand deposits; banks receive money and by that support the " banks; afloat otherwise, loss of reserves a banking system, and also panic around securities led to the fact that the size of demand deposits was reduced much more, than growth of cash in the population hands was observed. The offer of money was so undermined.

In 1933 the president Franklin Roosevelt put an end to bank panic, having declared national bank vacation which began with the fact that all banks for a week were closed, in came to the end with adoption of the program of federal insurance of deposits.

And still the volume of money supply in economy was reduced by 25%. This the recession of the offer of money, deepest in the American history, became one of the reasons of the heaviest and long depression in the country.

Today such huge reduction of the monetary offer what happened in 1930 - 1933 is just impossible. Thanks to FKSD guarantees bankruptcy of separate bank does not develop into general bank panic. Besides, if during bank panic of 1930 - 1933 of FRS remained in inaction, today she immediately would take measures for maintenance of reserves of a banking system and level of the monetary offer in the country.

Well, on this positive note it is a high time for all to wish stability and belief in bright future.]