3. Also known as the “Knickerbocker Crisis”, the Panic of 1907 saw the New York Stock Exchange plummet due to the lack of a national banking infrastructure
Following on from President Jackson’s abolition of the Bank of the United States, America remained without a national bank through the “Panic of 1907”. With the Hepburn Act restricting maximum railway rates by law in July 1906, stocks in railway companies rapidly declined. Falling an initial 17.5 percent between September 1906 and March 1907, financial fears spread throughout the summer until, in October, the stock markets crashed. Across a three-week period, starting in mid-October, the value of the New York Stock Exchange fell almost 50%. Panic spread throughout the country as consumers rushed to withdraw their money from banks.
Without a national bank to regulate and provide emergency liquidity, financier J.P. Morgan offered considerable sums of his own money in an effort to save the American banking system from total collapse. Joined by other New York institutions, Morgan saved the nation from economic implosion and by November the crisis had been averted in the short-term. The incident triggered a conceptual shift in financial perceptions within the political classes of the United States, leading to the creation of the independent Federal Reserve in 1913, as well as the reconstitution of the Bank of the United States in the same year, in an effort to preclude a recurrence.