After the stock market crash thousands of american banks closed because they
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Because the banks had to liquidate loans and sell assets to pay consumers withdrawing their funds, the banks began to fail due to lack of funds. When consumers began to panic, worried about the security of their funds in banks after the stock market crash, the banks had to take a financial loss to pay all of their customers immediately.
Without an influx of cash, the banks closed. Public Broadcasting Service notes that the American banking system was largely non-existent by The remaining banks couldn't give out loans to businesses. Consumers didn't know what checks to accept because many were worthless, and banks had huge amounts of assets in uncollectable loans and low value stock certificates.
Roosevelt attempted to help surviving banks by closing them for three days in for a "bank holiday" before allowing them to reopen with cautionary limits on withdrawals.
As confidence began to return to the banking system, the government set up the Federal Deposit Insurance Corporation to prevent future bank runs. The FDIC insures consumers' bank deposits so that if the bank closes, the government reimburses the consumer for any money lost.
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