During the Panic of 1907, with trust companies collapsing and the stock exchange on the verge of shutting down, financier J.P. Morgan summoned New York's bank presidents to his private library and effectively locked them in until they agreed to fund a rescue pool. His personal intervention averted a wider collapse but exposed how dangerously dependent the U.S. financial system was on one man's judgment, a realization that led directly to the creation of the Federal Reserve in 1913.
By early December 1907, the panic that had begun with a failed attempt to corner copper stock had metastasized into a full run on trust companies, institutions that operated with even less regulation and thinner reserves than banks. The New York Stock Exchange had nearly closed for lack of credit in October, and now in early December, with confidence still fragile, another wave of anxiety threatened to reignite the crisis.
J.P. Morgan, then 70 years old and the closest thing America had to a central bank, took matters into his own hands. He summoned the city's leading bank and trust company presidents to his marble library on 36th Street, and according to accounts of the period, effectively refused to let them leave until they agreed on a rescue plan, at one point reportedly locking the doors and pocketing the key while他 played solitaire in an adjoining room.
The bankers eventually pledged the emergency capital needed to stabilize the trusts, and the panic subsided. But the episode terrified policymakers precisely because it worked: the fate of the entire American economy had depended on the improvisational will of one aging private financier. That realization catalyzed years of study and debate culminating in the Federal Reserve Act of 1913, creating a central banking system so that the next panic wouldn't require Morgan's library and a locked door.
Key people: J.P. Morgan, George Perkins