The Knickerbocker Trust failure is widely seen as the event that intensified the 1907 panic and helped lead to the creation of the U.S. Federal Reserve.
Knickerbocker Trust Company, then one of New York’s largest trust companies, suspended operations on October 22, 1907. The failure followed a failed attempt to corner the stock of United Copper Company, which damaged confidence in the trust and in financial institutions more broadly. Depositors rushed to withdraw funds from other trusts and banks.
The panic spread through credit markets and the stock exchange. Financier J. P. Morgan organized private support, including efforts to stabilize threatened institutions and the New York banking system. The episode exposed the United States’ lack of a central bank able to provide emergency liquidity.
Congress responded through financial reforms, and the Federal Reserve System was established in 1913. Knickerbocker Trust did not single-handedly cause the panic, and it was not the same kind of event as a modern exchange crash. Its collapse became the most famous institutional failure in the crisis.