The crash of stock market is the beginning step for the Great Depression. During the year of 1929, considerable wealth destroyed in stock market. The health of economy becomes in question. Smoot-Hawley tariff increased cost of imported goods, thereby international trade collapsed. Spending of money declined and money stock fell. Simultaneously firms cut the prices. All these issues went to workers lay off. Repayment of loans by borrowers becomes harder as decline in incomes. US banking system failed. Decline also noticed in prices and employment. More than one thousand US banks closed during the period of 1930 to 1933.
The Great Depression ended March 1933 with the efforts of President Franklin D.Roosevelt (T). The President took charge of office in March 1933 and immediately he ordered to closure of all banks and declared national bank holiday. The reopening of banks is possible when the banks receive licenses from the government to operate banks. As a temporary measure, federal deposit insurance system is initiated. The policies of Roosevelt restored the confidence and money flow started into the banks. Further, the government also promoted various programs which includes cash grants to local governments, individuals thereby generation of employment started. The failure of markets or capitalism is not the causes of Great Depression and it can conclude that incident happened due to misguided government policies. The Federal Reserve allowed the money stocks thereby resulted collapsed of banks. Default in loans, bank failures and bankruptcies continue during the deflation. There is no legislation for which the Fed lends to banks. If the Fed purchased securities thorough open market, the banking system might have flooded with reserves. Strictly speaking, the lack of proper response of the Fed causes threatening of the banking system. It is a failure of Federal Reserve lacking of suitable response during the Great Depression.