Finance

Great Financial Crises, Part 4: The Wall Street Crash of 1929 and the Great Depression

The Dow fell 89% from 1929 to 1932 and took until 1954 to recover. Here is how the crash happened, why banks then failed by the thousand, and what it taught the world.

Raj ·Founder & Editor

Published in Finance · 4 min read · Oct 20, 2026

Empty 1920s stock exchange floor with scattered ticker tape paper and stormy light through tall windows

In this article

The Wall Street Crash of 1929 is the most famous stock market collapse in history. But the crash itself was only the beginning. What followed, a chain of banking panics, falling prices and mass unemployment, became the Great Depression. In Part 4 of Great Financial Crises, we look at how it unfolded and what it changed. (For the wider social history, see our article on the Great Depression and the 1929 crash.)

The Roaring Twenties boom

The 1920s were a time of rapid economic growth in the United States. New technologies such as cars, radios and electrical appliances spread quickly. Companies grew, profits rose and share prices climbed. Millions of ordinary Americans began investing in the stock market for the first time.

Buying on margin

Many investors bought shares "on margin," borrowing most of the purchase price. According to the Federal Reserve's history essay, buyers typically put down about 10% of a stock's price and borrowed the rest, using the shares as collateral. Margin magnifies gains in a rising market, but in a falling market it forces sales as lenders demand more collateral.

The Fed's dilemma

The Federal Reserve worried that speculation was diverting credit from productive uses. In February 1929, it asked banks not to lend to stock speculators, and in August 1929 the New York Fed raised its discount rate to 6%. Economists still debate whether tightening policy helped slow the economy, which had already started to weaken in summer 1929.

The crash

The Dow Jones Industrial Average peaked at 381.17 on 3 September 1929.
On Thursday 24 October ("Black Thursday"), heavy selling hit the market before bankers organised buying to steady prices.
On Monday 28 October, the Dow fell nearly 13%.
On Tuesday 29 October ("Black Tuesday"), it fell nearly 12% more.
By mid-November 1929, the Dow had lost almost half its value.

The New York Fed responded by buying government securities, lending to banks and lowering its discount rate, which helped stop a banking panic in New York at the time.

A long slide

The market rallied in early 1930 but then fell for more than two years. The Dow closed at 41.22 on 8 July 1932, its lowest close of the 20th century and about 89% below its peak. It did not regain its 1929 high until 23 November 1954, a quarter of a century later.

From crash to depression: the banking panics

The Fed's history essays point out that the crash alone did not cause the Great Depression. The decisive damage came from waves of bank failures:

November 1930: the collapse of the Caldwell banking group in the American South triggered failures of hundreds of banks.
December 1930: the Bank of United States, the fourth-largest bank in New York City, closed.
1931: new panics, including in Chicago and later as Britain left the gold standard.
Early 1933: a nationwide panic led President Franklin D. Roosevelt to declare a national bank holiday in March 1933.

According to the FDIC, about 9,000 banks suspended operations between 1930 and 1933, and many depositors lost their savings.

Deflation and unemployment

As people hoarded cash and banks built up reserves, the money supply shrank. Prices fell, making debts harder to repay. Businesses cut production and jobs. US unemployment is commonly estimated to have reached about 25% in 1933. Economists Milton Friedman and Anna Schwartz later argued that the Federal Reserve's failure to stop the banking panics and the fall in the money supply turned a recession into a depression.

Reforms that followed

Deposit insurance: the Banking Act of 1933 created the Federal Deposit Insurance Corporation (FDIC). Coverage began in 1934 at $2,500 per depositor. The FDIC states that no one has lost a penny of insured deposits since.
Glass-Steagall: the same 1933 law separated commercial banking from investment banking.
Securities regulation: the Securities Act of 1933 and the Securities Exchange Act of 1934 required companies to disclose information and created the Securities and Exchange Commission (SEC).
Margin rules: the Fed gained power to set margin requirements for stock purchases.
Leaving gold: countries that left the gold standard earlier, including Britain in 1931 and the US in 1933, generally recovered sooner.

Lessons for investors today

Leverage turns falls into crashes. Margin calls forced investors to sell at the worst possible moment.
Recoveries can take decades. Investors who bought at the 1929 peak waited 25 years to break even in nominal terms, though reinvested dividends and falling prices shortened the real recovery.
Banks matter more than stock prices. The banking collapse did far more damage than the crash itself.
Policy responses matter. Central banks today act aggressively in crises largely because of the lessons of the 1930s.
Diversification and time horizon protect investors better than trying to time the market.

In Part 5, we look at Germany in 1923, when prices doubled every few days and money became almost worthless.

Sources

Great Financial Crises: the full series

This series is for education only and is not investment advice. Figures are taken from the sources listed and other commonly cited historical records, and may vary slightly between sources.

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Written by Raj

Founder & Editor

I write HorizonDesk: practical, no-hype articles on technology, money, business and the vehicles we drive. Everything here is something I’ve researched, tested or wanted explained clearly myself.