Historical Significance

During the Great Depression there were multiple bank panics. Throughout the 1930s, 9,000 banks failed. A bank run occurred when customers feared that their bank would become insolvent and "run" to withdraw their savings. Because banks only held a small percentage of their deposits as cash reserves, banks were unable to pay the customers who wanted to withdraw money. Faced with bankruptcy, banks "called in" all the loans made to customers. This, in turn, often forced the bank's debtors into bankruptcy, particularly if the customer had already invested the loan in machinery that would take time to sell. When Roosevelt became president, he declared a three-day "bank holiday" to allow banks to get their finances in order.