The US Banking Panics — 1930 to 1933

The banks go

Seven steps, about ten minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.

Module 2 of 7
10 min
7 steps
6 questions
1 decision

Step 1 of 7

The question

American banks shut in their thousands in four years. Then the government made one promise, and nine insured banks shut in a whole year.

More than 600 American banks a year failed through the 1920s and it was never called a crisis.

Why it matters and what it covers

Between the crash of 1929 and the end of 1933 many times that number shut, because a queue at one bank starts a queue at the next one and the next town. Every bank that closed destroyed the savings inside it, so a large share of the money in America disappeared between 1929 and 1933, and prices fell with it. In March 1933 every bank in the country was shut, in the same month that more Americans were out of work than in any month ever recorded.

Seven steps cover the count, why panic spreads, where the money went, how many people were out of work, the week the banks closed, and the promise made in 1934 that ended the runs.

What this module covers

How many banks shut, against 600 a year as normal
Why a queue can close a bank that has done nothing wrong
How closing banks made much of the country's money disappear
How many Americans were out of work at the worst of it
March 1933, where the whole fall hit bottom
The week every bank in America was ordered shut
The promise that ended bank runs

Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.

Step 1 · 1929 to 1933

How many banks shut

You put your money in a bank so that it is safe. In America, for a while, it was not.

American banks shut in numbers never seen before, between the crash of 1929 and the end of 1933.

Customers lost about $1.3 billion in those banks, because a savings balance in a bank that shuts is not paid back.

Bank failures were not new. More than 600 a year had failed through the 1920s, ten times the rate of the decade before that.

The federal government read the first wave of closures in 1930 as ordinary, because 600 failures a year had never been called a crisis.

Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.

About 600 American banks a year failed through the 1920s. How many shut between the 1929 crash and the end of 1933?

Give it in banks. Guess: close scores almost as well as exact.

For scaleMore than 600 a year had failed through the 1920s, ten times the rate of the decade before.

Step 2 · November 1930

A queue at one bank

In November 1930 a company called Caldwell and Company collapsed, and the banks that kept their money with it went down too.

Where those banks closed, customers pulled their money out of other banks in fear. The panic then spread from town to town.

Bankers call a queue of customers all asking for their money at once a run, and a run closes a sound bank as surely as a weak one.

Fear, rather than bad lending, is what carried the closures from one town to the next. 1,350 banks shut in 1930 and about 2,300 shut in 1931.

Why could a bank with sound loans and honest managers still be closed by a queue at its door?

For scaleThe first wave came in November 1930, with the collapse of Caldwell and Company.

Step 3 · 1933

The money went with them

The 9,000 banks that closed destroyed the deposits inside them, because a savings balance in a closed bank stops being money anybody can spend.

Deposits are part of the country's , so the money supply fell as the banks shut, from the autumn of 1930 to the winter of 1933.

Prices fell by about the same share across the same four years.

Falling prices sound like relief and were the opposite, because the amount of money you owe stays the same, so makes every debt heavier.

money supply: The total of notes, coins and bank deposits held by households and firms. It grows two ways: when banks lend, because a new loan creates a new deposit, and when a central bank creates money directly, either to buy assets or to pay for what a government has not raised in tax.
deflation: A general fall in prices, so the same money buys more this year than last. Debts stay the same size while the money to pay them gets scarcer, so borrowers are squeezed even though prices are lower.

Three research bodies measure it slightly differently. Roughly what share of America's money disappeared between 1929 and 1933?

Give it in per cent. Guess: close scores almost as well as exact.

For scaleEvery bank that shut destroyed the savings held inside it, and about 9,000 shut.

Step 4 of 7

What happened next Next module Next: The Gold Standard in the Depression1925 to 1936. Every country promised to swap its money for gold at a fixed price, and the promise is what spread the fall. The ones that broke it first recovered first.

Module 2 of 7 in The Great Depression