The U.S. railroad bankruptcy in 1970 that became a major shock to financial markets was Penn Central.
Penn Central Transportation Company filed for bankruptcy on June 21, 1970. Created by the 1968 merger of the Pennsylvania Railroad and New York Central, the company struggled with declining passenger and freight business, high costs, and management problems. Its failure was the largest corporate bankruptcy in U.S. history at that time.
The bankruptcy alarmed investors because Penn Central’s commercial-paper obligations were widely held. Credit markets tightened as buyers became less willing to accept short-term corporate debt from other issuers. The Federal Reserve and other authorities took steps to prevent the disruption from spreading through the financial system.
Penn Central’s collapse was not itself a conventional one-day stock-market crash, but it was a major financial shock during a period of market weakness. The episode contributed to later reforms and to the creation of Amtrak, which assumed much of the company’s intercity passenger service in 1971.