When the Federal Reserve was unable to stem the bank panics of the 1930s, Congress responded by:
A) taking over the lender of last resort function and assigning this function to the U.S. Treasury.
B) ordering the printing of tens of billions of dollars of additional currency.
C) creating the FDIC and offering deposit insurance.
D) declaring a bank holiday and closing banks for 30 days.

Question

Quizplus · Accepted Answer

The correct answer is C. Congress responded to the bank panics of the 1930s by creating the FDIC and offering deposit insurance. This was done to restore confidence in the banking system and prevent future bank runs. Deposit insurance meant that even if a bank failed, depositors would still be able to recover their money up to a certain amount. This helped to prevent runs on banks, as people no longer feared losing their savings if a bank failed. This step was more effective than the alternatives listed in options A, B, and D.

When the Federal Reserve Was Unable to Stem the Bank