Chapter 26, Problem 2CYU

To determine

The reasons behind the failure of the federal reserve to prevent the bank run during the great depression and what were the measures that stopped the bank runs.

Explanation of Solution

Since many American institutions weren't members of the Federal Reserve System, they weren't permitted to access its reserves throughout the Depression to prevent a crash, and the demand for those alternative capital suppliers proved to be unsustainable.

The Federal Reserve's establishment did not successfully allay depositors' worries that they would lose their money in the case of a bank failure, which is why bank runs continued to occur. After federal deposit insurance was implemented and the people realized that their deposits were safe, the bank run gradually came to an end.