The Panic of 1907 helped spur the creation of the Federal Reserve System. The crisis began after a failed attempt to corner the stock of United Copper Company triggered runs on banks and trust companies.
Trust companies were important financial institutions but held fewer cash reserves than traditional commercial banks. As depositors and investors demanded money, the Knickerbocker Trust Company collapsed, worsening fear across New York’s financial system. The New York Stock Exchange also experienced severe pressure.
Financier J. P. Morgan organized private emergency support, persuading banks to provide liquidity and helping prevent a broader collapse. The episode showed how dependent the United States was on individual financiers because it lacked a permanent central bank.
Congress responded by establishing the National Monetary Commission, whose work contributed to the Federal Reserve Act of 1913. The Federal Reserve therefore arose from reform after the panic, not from the panic itself.