Which of the following best explains why many banks failed during the Great Depression?(1 point)

Question

Responses

Because banks refused to give out loans using stocks for collateral, no one was using banks and they went out of business.
Because banks refused to give out loans using stocks for collateral, no one was using banks and they went out of business.

Banks loaned people stocks bought on credit, so when the stock prices decreased, everyone stopped using banks.
Banks loaned people stocks bought on credit, so when the stock prices decreased, everyone stopped using banks.

Too many people were asking banks for loans at the same time and the banks didn’t have enough money to lend.
Too many people were asking banks for loans at the same time and the banks didn’t have enough money to lend.

Because banks are constantly lending money out, if everyone withdraws at the same time, they don’t have enough money to cover deposits.

Answer 1

The response that best explains why many banks failed during the Great Depression is:

Because banks are constantly lending money out, if everyone withdraws at the same time, they don’t have enough money to cover deposits.

This phenomenon is known as a bank run, where a large number of customers withdraw their deposits simultaneously due to concerns about the bank's solvency, leading to the bank's inability to meet withdrawal demands.