Bank Crisis: Differences In Banking Crisis In The Great Depression

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Bank crisis. Differences in banking structure US economy in the 1920s: There were two ways in which commercial banks could be characterised, i.e. nationally chartered banks and banks that were chartered by states. As branching was strictly forbidden by national regulators and most state regulators, this led to a majority of banks being unit banks. Unit banks were a serious problem in the twentieth century Great Depression especially, as it was “a system of banking in which the government restricts or does not permit a bank to open branch offices”. This hence means that unit banks were particularly susceptible to failure if the local economy of the community they were established in began to struggle. This would initially have a severe economic impact on the local economy, as a unit bank would struggle to raise the finances available to sustain themselves throughout a period of economic hardship. Subsequently, the local economy’s gradual deterioration would lead to widespread economic complications in the nation in its entirety. Unit banks were not backed by a large and strong financial institution as branch banks would be, and during the impending financial crisis, the US would see a lot of its unit banks close down as they were incapable of dealing with the sudden and ultimately detrimental pressure on their funds. The relevance of unit banks in relation the US can be seen through the McFadden Act of 1927 (US Federal Law) which specifically placed a ban on interstate

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