In October 1907, the New York financial world experienced a great shakeup and an extended run on several trust companies, exposing certain weaknesses in the banking system of the day. It was also a catalyst for the creation of the Federal Reserve System and other operational procedures and regulations of the banking system that we still use in the United States today.
One of the most prominent causes of the Panic of 1907 was the lack of regulations over trust companies, corporations that served as trustees for the financial assets of estates, individuals and businesses. Their freedom to trade in riskier ventures with extremely low reserves made the trust companies ticking time bombs.
Enter businessman F. Augustus Heinze. In the middle of a tight money market and a slowing economy, he attempted to corner the stock of United Copper Company and failed, causing the trust company to go bust. The absolute madness didn't break immediately, however. It wasn't until a few days later that trust companies around New York City began begging desperately for aid.
J.P. Morgan, along with James Stillman of National City Bank and George Baker of First National Bank, were among several financiers who attempted to bail out some of the trust companies being hit hardest by bank runs. The relief funds -- offered only to those institutions deemed sound enough -- helped avert a complete disaster, but the financial world of New York City would be shaken to the core by the end of the panic.
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