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1930-1931Reputable source · 2 sourcesWell documented

Banking Panics Turn a Recession Into the Great Depression

In the fall of 1930 runs on thousands of banks begin, and the downturn stops looking ordinary

On the timeline · around 1930-1931 · The Crash and CollapseThe Crash and CollapseBanking Panics Turn a Recession Into the Great Depression19301931

Quick facts

Panics begin
November 1930
Fed member banks
Over 8,000
Nonmember banks
Nearly 16,000
Bank suspensions, 1920s
Fewer than 1,000 per year, then rising

What happened

In the fall of 1930 the economy looked poised to recover, since the downturn had lasted about fifteen months, the average length of recent recessions. Then, in November 1930, a series of crises among commercial banks turned an ordinary recession into the beginning of the Great Depression. When the panics began, more than 8,000 commercial banks belonged to the Federal Reserve System, but nearly 16,000 did not, and those nonmember banks operated much as banks had before the Fed existed. Depositors, fearing for their savings, withdrew currency, draining reserves and forcing banks to fail. Annual bank suspensions, under 1,000 a year through the 1920s, began climbing in 1929 and rose toward their 1933 peak.

Why it matters

The banking panics are the moment historians point to when the crisis stopped resembling a normal recession. Each wave of failures destroyed deposits, contracted credit, and spread fear to still-solvent banks. The Federal Reserve, created in part to act as a lender of last resort, failed to stem the collapse, and its inaction became the central charge that later economists, above all Milton Friedman and Anna Schwartz, leveled against it.

How we know

Bank suspension counts come from the Federal Reserve Bulletin of September 1937, and the sequence of the 1930-1931 panics is reconstructed in the Federal Reserve History essay by economist Gary Richardson using contemporary Federal Reserve data.

Sources

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Part of a timelineThe Great Depression20 events · The longest and deepest downturn in the history of the modern industrial economy, from a stock market that lost 89 percent of its value to breadlines that ran for a decadeView all →
Banking Panics Turn a Recession Into the Great Depression · The Great Depression · SourcedStory