The Panic of 1907


The Panic of 1907, which is often referred to as the "rich man's panic," was severe while it lasted. Yet it is generally believed that it would have been still more severe had the financial interests of the country not combined for protection. Thus in New York, for example, the leading banks, through the medium of the clearing house association, issued an emergency currency, designated as clearing house certificates. A view of the panic by the Comptroller of the Currency follows:

Certainly since as long ago as the date of the San Francisco catastrophe there has been no lack of warning indications of financial troubles and possible business disaster. For at least ten or twelve years there has been an era of advancing prices and great industrial, commercial, and speculative activity in all the countries of the world.

Credits have increased and multiplied until the limit has been reached in the amount of reserve money on which they must be based.

For at least two or three years, however, it has been becoming more and more evident that there must soon be a slackening of pace if we were to avoid a general and universal crisis in financial and commercial affairs. These conditions have been world-wide and not by any means confined to the United States. Crises of more or less severity have arisen in several important countries. As is always the case when there is a demand for liquidation, it first manifested itself in the stock market. For months there has been a more or less steady decline in stock-market quotations. Not only stocks, but the very best bonds, have dropped lower and lower in price. The difficulty in selling bonds has become so great that for several years many of the railways have had to raise money for their necessary expenditures and improvements with so-called short time notes, instead of regular bond issues, the rates of interest on such issues rising higher and higher and each issue being harder to place. Merchants and manufacturers of the highest standing and credit have found it more and more difficult to secure or renew loans and the rates have risen steadily for months past.

With such conditions existing we approached the autumn crop- moving period, when there is always more or less disturbance of credit on account of currency shipments and withdrawals of balances from the reserve cities. For a time it seemed as if there were good reason to hope that there might be no more than a gradual liquidation which might be conducted in detail, one interest or line at a time, beginning with the stock market, and that while there might be a general decline in the volume of trade and the gradual liquidation of credits, it would not develop into a bank or commercial crisis. But during the month of October the collapse of a highly speculative corner in stocks, dealt in on the "curb" in New York not even listed on any regular exchange brought suspicion upon an old, well-established national bank in the city of New York. Although examinations by the national-bank examiners and the New York clearing house committee showed this bank to be entirely solvent, with its large capital and a considerable surplus still beyond question intact, public interest had been aroused to such an extent that runs developed in New York City on a number of other banks and trust companies and some national banks between which and the bank first under attack there was known to be community of ownership and management. The national banks of New York City were all found to be solvent by the clearing house committee, and being supported by the clearing house banks none failed.

But, unfortunately, a few other banks and trust companies were not in such good condition, and many of them, not being members of the clearing house or any similar association, they were not so well prepared for cooperation and support of each other. The Knickerbocker Trust Company, with $1,200,0x30 of capital and $48,387,000 of deposits, closed its doors on October 22, and this was followed by a large number of failures among smaller banks and trust companies. During the months of October and November ten State banks and trust companies, two of which have since resumed, closed their doors in New York City and vicinity. There were long and serious runs on two large trust companies, which were only kept from failure by the support of the other trust companies and the clearing-house banks. One national bank, the First National Bank of Brooklyn, which was clearing-house agent for two large trust companies in Brooklyn which had failed, was compelled to close its doors on October 25 in order to avoid the responsibility for the clearings of these trust companies, and is now in the hands of a receiver.

On October 26 the New York clearing-house banks decided to issue clearing-house certificates for use in the payment of balances, and to limit, if not suspend, the shipment of currency to out-of-town banks. In this the New York banks were followed by those of the other central reserve and most of the reserve cities. The result was to at once precipitate a most serious bank crisis and a famine of currency for pay rolls and other necessary cash transactions. All domestic exchanges were at once thrown into disorder and the means of remittance and collection were almost entirely suspended. Money has been withdrawn and hoarded by individuals, corporations, and even more, perhaps, by the banks themselves, all of whom at once drew and held all the money of any kind they could obtain, often really in larger sums than needed.

It has been one of the peculiar features of the situation that there has actually been more of a panic among the banks themselves than there has been among the people. The banks have been fearful as to what might develop, and finding their usual reserve deposits only partially available, if available at all, they have been compelled in self-protection to gather from every source all the money they could possibly reach and to hold on to it by refusing payment wherever it is possible and satisfying their customers with the smallest possible amount of cash. It has been remarkable how patiently and with  what forbearance the people in the business community generally have borne with the situation and helped the banks to deal with the emergency. With the exception of the f1rst excitement in New York and some smaller runs in other places, there has really been surprisingly little excitement or uneasiness among the people.

The greatest hardship to business generally has been the derangement of the machinery for making collections and remittances. As can readily be seen, this has interfered with every kind and class of business and led to great curtailment of business operations of every kind. Factories have suspended, workmen have been thrown out of employment, orders have been canceled, the moving of crops has been greatly retarded and interfered with and exports have fallen off at a time of the year when they should be at their highest. Another result has been a reduction of the volume of the foreign credits available just at the time they are most needed to offset the large imports of gold which have been made.


Website: The History
Article Name: The Panic of 1907
Researcher/Transcriber Miriam Medina


BIBLIOGRAPHY: Readings in the Economic History of the United States by Ernest Ludlow Bogart, PH.D. and Charles Manfred Thompson, PH.D.; Longmans, Green and Co. 1916
Time & Date Stamp: