The bank panic of 1907 demonstrates that crises in the banking system are nothing new. Once confidence is lost, panic spreads like a contagious disease. The Knickerbocker Trust Company was the third largest of the New York trust companies. The failure of such a prestigious financial institution inevitably caused the jitters to spread throughout the banking system.
It started with an attempt by shady copper magnate Augustus Heinze and his equally dishonest brother Otto to comer the copper market – dodgy dealing to gain control of enough shares to manipulate the price. Their cornering bid failed dismally. Instead of getting control of their target – the United Copper Company – their shenanigans caused the sudden collapse of its share price.
There were whispers that the Knickerbocker Trust Company’s President, Charles Barney, was one the Heinze brothers’ cronies. Depositors panicked and on October 22, a week after the United Copper Company collapse, they started a run on the Knickerbocker Trust. In under three hours $8 million was withdrawn, completely wiping out the company’s funds. Barney begged financier J P Morgan for help but Morgan refused; Barney had no choice but to order the company to cease trading.
By Thursday October 24 banks and trust companies across the USA were affected. At the same time the stock market was collapsing.
J P Morgan realized that if the Stock Exchange were forced to dose, the entire US financial system would crash. He persuaded New York’s most influential financiers, John Rockefeller (the wealthiest man in America) amongst them, to contribute enough funds to temporarily restore liquidity. On Friday he made a press announcement outlining a financial rescue package and instructed the clergy to calm their congregations during that Sunday’s sermon. The weekend break calmed nerves and on Monday the Stock Exchange opened for business as usual. Complete meltdown had been prevented … for the moment.
The bank panic of 1907 demonstrates that crises in the banking system are nothing new. Once confidence is lost, panic spreads like a contagious disease. The Knickerbocker Trust Company was the third largest of the New York trust companies. The failure of such a prestigious financial institution inevitably caused the jitters to spread throughout the banking system.
It started with an attempt by shady copper magnate Augustus Heinze and his equally dishonest brother Otto to comer the copper market – dodgy dealing to gain control of enough shares to manipulate the price. Their cornering bid failed dismally. Instead of getting control of their target – the United Copper Company – their shenanigans caused the sudden collapse of its share price.
There were whispers that the Knickerbocker Trust Company’s President, Charles Barney, was one the Heinze brothers’ cronies. Depositors panicked and on October 22, a week after the United Copper Company collapse, they started a run on the Knickerbocker Trust. In under three hours $8 million was withdrawn, completely wiping out the company’s funds. Barney begged financier J P Morgan for help but Morgan refused; Barney had no choice but to order the company to cease trading.
By Thursday October 24 banks and trust companies across the USA were affected. At the same time the stock market was collapsing.
J P Morgan realized that if the Stock Exchange were forced to dose, the entire US financial system would crash. He persuaded New York’s most influential financiers, John Rockefeller (the wealthiest man in America) amongst them, to contribute enough funds to temporarily restore liquidity. On Friday he made a press announcement outlining a financial rescue package and instructed the clergy to calm their congregations during that Sunday’s sermon. The weekend break calmed nerves and on Monday the Stock Exchange opened for business as usual. Complete meltdown had been prevented … for the moment.
When: Tuesday October 22 to Monday October 28 1907
Where: New York, USA
Toll: Charles Barney, President of the Knickerbocker trust company shot himself. The New York stock Exchange lost 50 per cent of its value and many ordinary small-time investors lost their savings.
You should know: The 1907 New York bank panic led to the creation of a central banking system – the Federal Reserve.
