<P> A large contribution to the recession is due to the closure and suspension of thousands of banks across the country . The causation of these failing financial institutions come from several reasons including unregulated lending procedures, confidence in the Gold standard, consumer confidence in future economics, and agricultural defaults on outstanding loans . With these compacting issues the banking system struggled to keep up with the high demand of cash withdraws from the public . This impact overall decreased the money supply and forced the banks to result to short sale (real estate) and liquidation of existing loans . In the race to liquidate assets the banking system began to fail on a wide scale . In November 1930 the first major banking crisis begun with over 800 banks closing their doors by January 1931; over 2100 banks will be suspended by October 1931, with the highest suspension rate recorded in the St. Louis Federal Reserve District with 2 out of every 5 banks suspended . The economy in whole experienced a massive reduction in banking footholds across the country amounting to more than nine thousand closed banks by 1933 . </P> <P> The closures resulted in a massive withdraw of deposits by millions of Americans estimated near 6.8 billion dollars (equivalent to around 60 billion dollars in today's dollars). During this time the Federal Deposit Insurance Corporation (FDIC) was not in place resulting in a loss of roughly 1.36 billion dollars (or 20%) of the total 6.8 billion accounted for within the failed banks . These losses will come directly from everyday individuals savings, investments, and daily banking accounts . GDP will fall as a result from the high seven - hundreds in 1929 to the low mid six - hundreds in 1933 before seeing any recovery for the first time in nearly 4 years . Federal leadership intervention is highly debated on its effectiveness and overall participation . The Federal Reserve Act could not effectively tackle the banking crisis as state bank and trust companies were not compelled to be a member, paper eligible discount member banks heavily restricted access to the fed, power between the twelve federal reserve banks was decentralized and federal level leadership were ineffective, inexperienced, and weak . </P> <P> Throughout the early 1900s banking regulations were extremely lax if not non-existent . The Currency Act of 1900 lowered the required capital of investors from 50,000 to 25,000 to create a national bank . As a result of this change nearly two thirds of the banks formed over the next ten years were quite small, averaging just above the 25,000 in required capital . The number of banks will nearly double (number of banks divided by Real GDP) from 1890 to 1920 due to the lack of oversight and qualification when banking charters were being issued in the first two decades of the 1900s . </P> <P> The unregulated growth of small rural banking institutions can be partially attributed to the rising cost of agriculture especially in the Corn Belt and Cotton Belt . Throughout the corn and cotton belts real estate increases drove the demand for more local funding to continue to supply rising agricultural economics . The rural banking structures would supply the needed capital to meet the farm commodity market, however, this came with a price of reliability and low risk lending . Economic growth was promising during the period of 1887 - 1920 with an on average of 6 percent growth in (GDP). In particular the participation in World War I (1917 - 1918) drove a booming agricultural market that drove optimism at the consumer and lending level, which in turn, resulted in a laxer approach in the lending process . Overbanked conditions existed which pressured struggling banking locations to increase their services (specifically to the agricultural customers) without any additional regulatory oversight or qualifications . This dilemma introduced several high risk and marginal business returns to the banking market . Banking growth would continue through the first two decades well outside of previous trends disregarding the current economic and population standards . Banking profitability and loan standards begin to deteriorate as early as 1900 as a result; adding to the agriculture shock and Great Depression to follow . </P>

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