Americans were nervous and they were responsive to the rumors of the stock market crash. Thousands of people went to the bank out of fear that they would lose their money. These people forced the banks to liquidate loans and this is most of what made the banks fail. The consumer spending and investment started to decrease, which soon would turn into a decline in production and employment.
The depression in the U.S. had started as an ordinary recession and it began to get worse over the later part of 1929, this continued on until 1933. Once the recession reached its lowest point, the industrial production in the U.S. had declined to 47%. The gross domestic product or GDP had fallen to 30% and the total unemployment reached a high of 20%. In this time of the depression bankruptcies were becoming common. About 650 banks failed in 1929, that following year it would rise to 1,300.
The people in a panic didn’t take into consideration that the banks can only hold a percentage of deposits in cash at one time. When there are bank runs, banks need to liquidate loans and sell their assets at the lowest price they can to come up with the money.
A man had gone to a branch of the Bank of the United States and asked to sell his stock in the institution. At the bank they told him that the stock was a good investment and they advised him not to sell it. The man left and he began to spread rumors that the bank refused to sell his stock. Within a couple hours a crowd had gathered outside the bank that afternoon between 2,500 and 3,500 depositors withdrew 2 million in funds.
A man had gone to a branch of the Bank of the United States and asked to sell his stock in the institution. At the bank they told him that the stock was a good investment and they advised him not to sell it. The man left and he began to spread rumors that the bank refused to sell his stock. Within a couple hours a crowd had gathered outside the bank that afternoon between 2,500 and 3,500 depositors withdrew 2 million in funds.
In December 1931, New York's Bank of the United States collapsed. The bank had more than $200 million in deposits at the time, making it the largest single bank failure in American history.