Eight Million Dollars in Three Hours: The Panic of 1907
On October 22, 1907, a bank run drained $8 million from New York's Knickerbocker Trust in under three hours, igniting a panic that ended with the creation of the Federal Reserve.
By mid-morning on Tuesday, October 22, 1907, the line outside the Knickerbocker Trust Company at Fifth Avenue and 34th Street stretched around the block. Depositors pushed through the doors demanding their money, and as The New York Times reported the next day, "as fast as a depositor went out of the place ten people and more came asking for their money." In less than three hours, $8 million walked out the door. Shortly after noon, the Knickerbocker — New York's third-largest trust company — suspended operations. The panic was on.
The fuse had been lit eight days earlier by a brazen gamble on copper. On October 14, Otto Heinze began buying up shares of the United Copper Company, convinced his family already controlled most of the stock and could squeeze the short sellers for a fortune. He was wrong. The price spiked, then collapsed — from nearly $60 to $10 in two days. His brokerage, Gross & Kleeberg, went bankrupt. The State Savings Bank of Butte, Montana, owned by his brother Augustus, announced it was insolvent. Depositors rushed to pull money from every bank connected to the Heinze brothers and their associate, the notorious speculator Charles W. Morse.
The Knickerbocker's president, Charles T. Barney, had financed some of Morse's earlier schemes. On October 21, the trust's board forced Barney to resign — and that same day, the National Bank of Commerce, where the financier J.P. Morgan held sway, announced it would no longer clear the Knickerbocker's checks. To depositors, it looked like a death sentence. They came for their money all at once, and no institution would lend the trust the cash to pay them.
What followed was three weeks of financial terror. Runs spread to the Trust Company of America — which paid out a staggering $34 million to its depositors — and the Lincoln Trust. With no central bank to turn to, the rescue fell to one man: the 70-year-old Morgan, summoned back to New York, convened the city's bankers in his private library and bullied them into pooling their money. Treasury Secretary George Cortelyou deposited federal funds in New York banks. Slowly, the bleeding stopped.
The panic exposed a dangerous truth: America's banking system had no lender of last resort. Six years of political argument followed, and in 1913 Congress created the Federal Reserve System. As the journalist Edwin Lefèvre wrote in 1908, "it is sad to want money and not get it. But to ask for your own money and not get it is the civilised man's hell." On October 22, 1907, thousands of New Yorkers lived that hell — and the country rebuilt its financial system so they would never have to again.
No public-domain photograph of the 1907 panic could be verified at a usable size, so this story is published without an image.