Panic of 1907

Quick Facts: Who was Panic of 1907?

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Panic of 1907

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A three-week financial crisis in the US, triggered by stock manipulation and banking runs.

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2Day Chrono-Wiki & Primary Historical Archives

Origins & Early Life

The Panic of 1907, also known as the 1907 Bankers' Panic or Knickerbocker Crisis, was a financial crisis that took place in the United States over a three-week period starting in mid-October, when the New York Stock Exchange suddenly fell almost 50% from its peak the previous year. The panic occurred during a time of economic recession, and there were numerous runs affecting banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy. The primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops. The panic was triggered by the failed attempt in October 1907 to corner the market on stock of the United Copper Company.

Career & Major Achievements

When the bid failed, banks that had lent money to the cornering scheme suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Company, New York City's third-largest trust. The collapse of the Knickerbocker spread fear throughout the city's trusts as regional banks withdrew reserves from New York City banks. The panic then extended across the nation as vast numbers of people withdrew deposits from their regional banks, causing the 8th-largest decline in U.S. stock market history. The panic might have deepened if not for the intervention of financier J. P. Morgan, who pledged large sums of his own money and convinced other New York bankers to do the same to shore up the banking system. That highlighted the limitations of the US Independent Treasury system, which managed the nation's money supply but was unable to inject sufficient liquidity back into the market.

Enduring Legacy & Impact

By November, the financial contagion had largely ended, only to be replaced by a further crisis due to the heavy borrowing of a large brokerage firm using the stock of Tennessee Coal, Iron and Railroad Company (TC&I) as collateral. Collapse of TC&I's stock price was averted by an emergency takeover by Morgan's U.S. Steel Corporation, a move approved by the trust-busting President Theodore Roosevelt. The following year, Senator Nelson W. Aldrich, a leading Republican, established and chaired a commission to investigate the crisis and propose future solutions, which led to the creation of the Federal Reserve System. When United States President Andrew Jackson allowed the charter of the Second Bank of the United States to expire in 1836, the U.S. was without any sort of central bank, and the money supply in New York City fluctuated with the country's annual agricultural cycle. Each autumn, money flowed out of the city as harvests were purchased and—in an effort to attract money back—interest rates were raised.

Chronological Milestones & Life Events

1. 1836: 1836 Milestone — When United States President Andrew Jackson allowed the charter of the Second Bank of the United States to expire in 1836, the U.
2. 1907: 1907 Milestone — The Panic of 1907, also known as the 1907 Bankers' Panic or Knickerbocker Crisis, was a financial crisis that took place in the United States over a three-week period starting in mid-October, when the New York Stock Exchange suddenly fell almost 50% from its peak the previous year.

Historical Fact-Check Quiz: Panic of 1907

True or False: “The Panic of 1907 was immediately resolved by the establishment of a central bank authority.”

Answer (FALSE ❌): While the crisis led to calls for reform, the Federal Reserve System was established in the following year after investigations.

Contemporary Figures & Related Historical Timelines

• A. D. Hope — Historical peer (Born in 1907) (1907): Australian poet and essayist celebrated for his satirical wit and academic career.
• Abraham Joshua Heschel — Historical peer (Born in 1907) (1907): Leading 20th-century American rabbi, theologian, and philosopher.
• Aaron Burr — Historical peer (Died in 1836) (1836): American politician, lawyer, and statesman known for his role in the Jeffersonian era.
• André-Marie Ampère — Historical peer (Died in 1836) (1836): Founder of classical electromagnetism; inventor of the solenoid and electrical telegraph.

Frequently Asked Questions about Panic of 1907