Tuesday, December 4, 2012

How did Roosevelt attempt to correct the U.S. banking system in the early 1930s?

Franklin Roosevelt and Congress did two main things to try to
fix the problems of the US banking system. First, they created the FDIC. Second, they passed the
Glass-Steagal Act.


The major problem with the banking system in the
'30s was that banks had used depositor money to invest in the stock market and to loan to people
who wanted to play the stock market. When the stock market crashed, the banks lost their money
and so did their depositors. The actions mentioned above fixed these
problems.


The Glass-Steagal Act separated commercial and investment
banking. This meant that deposits could not simply be taken and invested. Instead, investment
banks would have to find funds some other way. The creation of the FDIC ensured that depositors
would get their money back if their bank went bankrupt. These two measures together made it so
that banks would be less likely to fail through making bad investments and made it so that
depositors would not lose their money in the event that a bank did
fail.


Please consult the link below for more on
this.

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