Question

Identify and explain the two major acts passed shortly after the Great Depression.

Answer 1

Solution:-

We know that the fractures in the banking sector resulted in the great depression. Shortly, after the US government passed two acts to deal with the problems in the banking sector and fix them. The two acts passed and their explanation are as follows:

1. Emergency banking act of 1933:
   • This act was passed very shortly after the great depression to restore the lost faith of citizens in the banking system. The financial crash of 1929 resulted in innumerable runs on the banks and people's saving deposits getting vanished as a result. This further reinforced the people's doubts on the banking system.
   • This act was passed on to change that and it did that by creating Federal Deposit Insurance corporation which insured people's bank deposits
   • It also gave powers to the President independent of the central bank to overlook the banking system in times of crisis
2. The Glass-Steagall Act
   • While the emergency banking act helped in temporarily correcting the damage and restoring faith in the banking system, the Glass-Steagall act was formed to actually correct the root causes of problems in the banking system which resulted in the stock market crash
   • The act separated commercial banking from investment banking and barred banks from doing investing activities using the deposits of its accountholders
   • It also prohibited banks from getting into insurance business using their customer's deposits
   • This ensured that banks would not make speculative investments using their customers' deposits which would stabilise the bank balance sheets and the whole system