5. The collapse of the banking system worsened the depression nationwide
The near-total collapse of the banking system in 1930, which continued in waves across the country for another three years, created many of the circumstances associated with the Great Depression. Money vanished from circulation. The unregulated lending practices of the 1920s and the ineffectiveness of the Federal Reserve combined to cripple the banks. Americans distrusted the banks, withdrawing their funds whenever possible. Banks chartered by states were not required to be members of the Federal Reserve, which limited its ability to intervene. Weak leadership at the Federal Reserve, as well as decentralization of its 12 banks, contributed further to the national panic.
Herbert Hoover continued to promote the idea that the economic downturn in the fall of 1929 and the early winter of 1930 would be mild. The belief contributed to the recession caused by the stock market crash becoming the Great Depression. By the time the need for positive action by the federal government was obvious, the economy sat in shambles. The collapse of the banking industry, induced by a lack of consumer confidence in the system and the government, finally drew Hoover’s attention in 1931. He took several actions which steadily worsened the financial situation. The following year, 1932, is widely regarded as the worst of the Great Depression for most Americans.