The panic of 1907 leads to banking revision

Of all the crises of recent years, none called forth more popular discussion than that of 1907. To a greater degree than in previous periods of depression did it appear that the central difficulty was a faulty banking system, particularly as there had been no general crop failure, as in 1893, and since to all outward appearances the industries of the country had been sound and flourishing. To restore the tottering foundations of credit, gold was imported in enormous quantities from Europe, from countries where the per capita stock was less than in the United States. More strikingly than ever did it appear that our banking system was inadequately devised to utilize efficiently our vast quantities of gold in the support of the nation’s credit. Never was there a crisis which was rooted more indisputably in monetary disorders, rather than in fundamental industrial weaknesses.

But save for one spectacular feature it may be doubted whether even this collapse would have been sufficient to overcome the inertia of the people and lead to a general demand for banking revision. In 1907, bankers in the interior found themselves unable to withdraw their deposits from New York City, and as a consequence, there was a country-wide tie-up. In August of that year, more than a third of the cash reserves of 6544 national banks were held in the vaults of the New York banks. If any such concentration of credit must exist, bankers and the public asked, would it not be preferable that it be controlled by banking institutions devised for the especial purpose of meeting the variable needs of business? Was not a publicly controlled centralization preferable to the irresponsible private concentration of the past?