Financial Panic of 1907
What It Is
The Financial Panic of 1907 was a severe banking crisis triggered by liquidity shortages, failed speculation, and the collapse of trust in the U.S. financial system.
Why It Matters
This crisis directly led to the creation of the Federal Reserve in 1913, making it one of the most important events in U.S. financial history.
How It Happened
- A failed attempt to corner the copper market
- Runs on trust companies
- Collapse of the Knickerbocker Trust
- Widespread liquidity shortages
- J.P. Morgan personally coordinated private bailouts
Key Components
- Trust company vulnerabilities
- Lack of a central bank
- Contagion through financial institutions
- Emergency private-sector intervention
Example
Knickerbocker Trust’s collapse sparked panic across New York, causing depositors to withdraw funds from multiple institutions.
Key Takeaways
- The U.S. lacked a lender of last resort.
- Private financiers stabilized the system.
- The crisis exposed structural weaknesses that led to the Federal Reserve Act.