Abstract: The Panic of 1907: Trust Companies and the Impact of the Financial Crisis

Carola Frydman and Eric Hilt


The outbreak of the Panic of 1907 occurred following a series of scandalous revelations about the investments of some prominent New York financiers, which triggered widespread runs on trust companies throughout New York City. Trust companies were less regulated and held fewer reserves than commercial banks, and were not members of the New York Clearing House Association (NYCHA). Using newly collected data, this paper investigates the economic consequences of the Panic of 1907 and the regulatory response that followed. The runs on the trust companies are shown to be partly the result of depositors' fears that their trust companies were caught up in a scandal, when in fact they were not. The corporate clients of the trust companies that suffered the worst deposit losses, in turn, performed worse during the years of the crisis and its aftermath. In response, the state increased reserve requirements on trust companies, and they were ultimately admitted into the NYCHA in 1911.