The banking system collapsed as an effect of the stock market crash because:

a. banks had to pay all the businesses insured against bankruptcy.

b. ran out of cash to pay all the investors who needed ready money after the crash.

c. had lent huge sums to foreign banks that could not repay the loans after the crash.

d. were already in a crisis, and the stock market crash made them run out of money.

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Seth Conway

26 June, 06:49

The banking system collapsed as an effect of the stock market crash because:

a. banks had to pay all the businesses insured against bankruptcy.

b. ran out of cash to pay all the investors who needed ready money after the crash.

c. had lent huge sums to foreign banks that could not repay the loans after the crash.

d. were already in a crisis, and the stock market crash made them run out of money.

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Magdalena · Answer 1

The banking system collapsed as an effect of the stock market crash because : b. ran out of cash to pay all the investors who needed ready money after the crash.

After stock market crash, investors tend to became paranoid and prefer to have liquid cash on their hand. This will lead to a lot of them simultaneously asked the bank to cash out their deposit.

The think is, banks usually won't be able to fulfill this demand because the cash that those people deposited is already allocated to another investment