ThePanic of 1907, also known as the1907 Bankers' Panic orKnickerbocker Crisis,[1] was afinancial crisis that took place in the United States over a three-week period starting in mid-October, when theNew York Stock Exchange suddenly fell almost 50% from its peak the previous year. The panic occurred during a time of economicrecession, and there were numerousruns affectingbanks andtrust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses enteredbankruptcy. The primary causes of the run included a retraction ofmarket liquidity by a number of New York City banks and a loss of confidence amongdepositors, exacerbated by unregulatedside bets atbucket shops.[2]
The panic was triggered by the failed attempt in October 1907 tocorner the market onstock of theUnited Copper Company. When the bid failed, banks that had lent money to the cornering scheme suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of theKnickerbocker Trust Company, New York City's third-largest trust. The collapse of the Knickerbocker spread fear throughout the city's trusts asregional banks withdrewreserves from New York City banks. The panic then extended across the nation as vast numbers of people withdrew deposits from their regional banks, causing the 8th-largest decline in U.S. stock market history.[3]
The panic might have deepened if not for the intervention of financierJ. P. Morgan,[4] who pledged large sums of his own money and convinced other New York bankers to do the same to shore up thebanking system. That highlighted the limitations of the USIndependent Treasury system, which managed the nation'smoney supply but was unable to inject sufficient liquidity back into the market. By November, thefinancial contagion had largely ended, only to be replaced by a further crisis due to the heavy borrowing of a large brokerage firm using the stock ofTennessee Coal, Iron and Railroad Company (TC&I) ascollateral. Collapse of TC&I's stock price was averted by an emergency takeover by Morgan'sU.S. Steel Corporation, a move approved by thetrust-busting PresidentTheodore Roosevelt. The following year, SenatorNelson W. Aldrich, a leading Republican, established and chaired a commission to investigate the crisis and propose future solutions, which led to the creation of theFederal Reserve System.[5][6]
When United States PresidentAndrew Jackson allowed the charter of theSecond Bank of the United States to expire in 1836, the U.S. was without any sort ofcentral bank, and themoney supply in New York City fluctuated with the country's annual agricultural cycle. Each autumn money flowed out of the city as harvests were purchased and—in an effort to attract money back—interest rates were raised. Foreign investors then sent their money to New York to take advantage of the higher rates.[7] From the January 1906Dow Jones Industrial Average high of 103, the market began a modest correction that would continue throughout the year. TheApril 1906 earthquake that devastated San Francisco contributed to the market instability, prompting an even greater flood of money from New York to San Francisco to aid reconstruction.[8][9] A further stress on the money supply occurred in late 1906, when theBank of England raised its interest rates, partly in response to UK insurance companies paying out so much to US policyholders, and more funds remained in London than expected.[10] From their peak in January, stock prices declined 18% by July 1906. By late September, stocks had recovered about half of their losses.
TheHepburn Act, which gave theInterstate Commerce Commission (ICC) the power to set maximum railroad rates, became law in July 1906.[11] This depreciated the value of railroad securities.[12] Between September 1906 and March 1907, the stock market slid, losing 7.7% of itscapitalization.[13] Between March 9 and 26, stocks fell a further 9.8%.[14] (This March collapse is sometimes referred to as a "rich man's panic".)[15] The economy remained volatile through the summer. A number of shocks hit the system: the stock ofUnion Pacific—among the most common stocks used ascollateral—fell 50 points; that June an offering of New York Citybonds failed; in July thecopper market collapsed; in August theStandard Oil Company was fined $29 million forantitrust violations.[15] In the first nine months of 1907, stocks were lower by 24.4%.[16]
On July 27,The Commercial & Financial Chronicle noted that "the market keeps unstable ... no sooner are these signs of new life in evidence than something like a suggestion of a new outflow of gold to Paris sends a tremble all through the list, and the gain in values and hope is gone".[17] Severalbank runs occurred outside the US in 1907: in Egypt in April and May; in Japan in May and June; in Germany and Chile in early October.[11] The fall season was always a vulnerable time for the banking system—combined with the roiled stock market, even a small shock could have grave repercussions.[10]
| Monday, October 14 | Otto Heinze begins purchasing to corner the stock ofUnited Copper. |
|---|---|
| Wednesday, October 16 | Heinze's corner fails spectacularly. Heinze's brokerage house, Gross & Kleeberg is forced to close. This is the date traditionally cited as when the corner failed. |
| Thursday, October 17 | The Exchange suspends Otto Heinze and Company. The State Savings Bank of Butte, Montana, owned byAugustus Heinze announces it is insolvent. Augustus is forced to resign fromMercantile National Bank. Runs begin at Augustus' and his associateCharles W. Morse's banks. |
| Sunday, October 20 | The New York Clearing House forces Augustus and Morse to resign from all their banking interests. |
| Monday, October 21 | Charles T. Barney is forced to resign from theKnickerbocker Trust Company because of his ties to Morse and Heinze. TheNational Bank of Commerce says it will no longer serve as clearing house. |
| Tuesday, October 22 | Abank run forces the Knickerbocker to suspend operations. |
| Wednesday, October 23 | J.P. Morgan persuades other trust company presidents to provide liquidity to the Trust Company of America, staving off its collapse. |
| Thursday, October 24 | Treasury SecretaryGeorge Cortelyou agrees to deposit Federal money in New York banks. Morgan persuades bank presidents to provide $23 million to theNew York Stock Exchange to prevent an early closure. |
| Friday October 25 | Crisis is again narrowly averted at the Exchange. |
| Sunday, October 27 | TheCity of New York tells Morgan associateGeorge Perkins that if they cannot raise $20–30 million by November 1, the city will be insolvent. |
| Tuesday, October 29 | Morgan purchased $30 million in city bonds, discreetly averting bankruptcy for the city. |
| Saturday, November 2 | Moore & Schley, a major brokerage, nears collapse because its loans were backed by theTennessee Coal, Iron & Railroad Company (TC&I), a stock whose value is uncertain. A proposal is made forU.S. Steel to purchase TC&I. |
| Sunday, November 3 | A plan is finalized for U.S. Steel to take over TC&I. |
| Monday, November 4 | PresidentTheodore Roosevelt approves U.S. Steel's takeover of TC&I, despite anticompetitive concerns. |
| Tuesday, November 5 | Markets are closed forElection Day (no federal elections were actually held this year). |
The 1907 panic began with astock manipulation scheme tocorner the market inF. Augustus Heinze'sUnited Copper Company. Heinze had made a fortune as acopper magnate inButte, Montana. In 1906 he moved to New York City, where he formed a close relationship with notoriousWall Street bankerCharles W. Morse. Morse had once successfully cornered New York City'sice market, and together with Heinze gained control of many banks—the pair served on the boards of at least sixnational banks, tenstate banks, fivetrust companies and fourinsurance firms.[19]
Augustus' brother, Otto, devised the scheme to corner United Copper, believing that the Heinze family already controlled a majority of the company. He also believed that a significant number of the Heinzes'shares had beenborrowed, andsold short, by speculators betting that the stock price would drop, and that they could thus repurchase the borrowed shares cheaply, pocketing the difference. Otto proposed ashort squeeze, in which the Heinzes would aggressively purchase as many remaining shares as possible, and then force the short sellers to pay for their borrowed shares. The aggressive purchasing would drive up the share price, and, being unable to find shares elsewhere, the short sellers would have no option but to turn to the Heinzes, who could then name their price.[20]
To finance the scheme, Otto, Augustus and Charles Morse met withCharles T. Barney, president of the city's third-largest trust, theKnickerbocker Trust Company. Barney had provided financing for previous Morse schemes. Morse, however, cautioned Otto that in order to attempt the squeeze, Otto needed much more money than Barney had, and Barney declined to provide funding.[21] Otto decided to attempt the corner anyway. On Monday, October 14, he began aggressively purchasing shares of United Copper, which rose in one day from $39 to $52 per share. On Tuesday (Oct. 15), he issued the call for short sellers to return the borrowed stock. The share price rose to nearly $60, but the short sellers were able to find plenty of United Copper shares from sources other than the Heinzes. Otto had misread the market, and the share price of United Copper began to collapse.[22]
The stock closed at $30 on Tuesday and fell to $10 by Wednesday (Oct. 16). Otto Heinze was ruined. The stock of United Copper was traded outsidethe hall of theNew York Stock Exchange, literally an outdoor market "on the curb" (this curb market would later become theAmerican Stock Exchange). After the crash,The Wall Street Journal reported, "Never has there been such wild scenes on the Curb, so say the oldest veterans of the outside market".[23]
The failure of the corner left Otto unable to meet his obligations and sent his brokerage house, Gross & Kleeberg, into bankruptcy. On Thursday, October 17, the New York Stock Exchange suspended Otto's trading privileges. As a result of United Copper's collapse, the State Savings Bank of Butte Montana (owned by F. Augustus Heinze) announced its insolvency. The Montana bank had held United Copper stock ascollateral against some of its lending and had been acorrespondent bank for the Mercantile National Bank in New York City, of which F. Augustus Heinze was then president.
F. Augustus Heinze's association with the corner and the insolvent State Savings Bank proved too much for the board of the Mercantile to accept. Although they forced him to resign before lunch time,[24] by then it was too late. As news of the collapse spread, depositors rusheden masse to withdraw money from the Mercantile National Bank. The Mercantile had enough capital to withstand a few days of withdrawals, but depositors began to pull cash from the banks of the Heinzes' associate Charles W. Morse. Runs occurred at Morse's National Bank of North America and the New Amsterdam National. Afraid of the impact the tainted reputations of Augustus Heinze and Morse could have on the banking system, theNew York Clearing House (a consortium of the city's banks) forced Morse and Heinze to resign all banking interests.[25] By the weekend after the failed corner, there was not yet systemic panic. Funds were withdrawn from Heinze-associated banks, only to be deposited with other banks in the city.[26]
A week later many regional stock exchanges throughout the nation were closing or limiting trading. For example, thePittsburgh city'sstock exchange closed for three months starting on October 23, 1907.[27]
In the early 1900s,trust companies were booming; in the decade before 1907, their assets had grown by 244%. During the same period, national bank assets grew by 97%, while state banks in New York increased by 82%.[28] The leaders of the high-flying trusts were mainly prominent members of New York's financial and social circles. One of the most respected wasCharles T. Barney, whose late father-in-lawWilliam Collins Whitney was a famous financier. Barney'sKnickerbocker Trust Company was the third-largest trust in New York.[29]
Because of past association with Charles W. Morse and F. Augustus Heinze, on Monday, October 21, the board of the Knickerbocker asked that Barney resign (depositors may have first begun to pull deposits from the Knickerbocker on October 18, prompting the concern).[26] That day, theNational Bank of Commerce where J.P. Morgan was a dominant factor, announced it would not serve asclearing house for the Knickerbocker. On October 22, the Knickerbocker faced a classic bank run. From the bank's opening, the crowd grew. AsThe New York Times reported, "as fast as a depositor went out of the place ten people and more came asking for their money [and the police] were asked to send some men to keep order".[30] Two van loads of notes were quickly unloaded, yet even this failed to calm the panic stricken depositors. Directors and other officials of the Trust forced their way through the crowd, assuring them that everyone would be paid.[31] In less than three hours, $8 million (equivalent to $270 million in 2024) was withdrawn from the Knickerbocker. Shortly after noon it was forced to suspend operations.[26]
As news spread, other banks and trust companies were reluctant to lend any money. The interest rates on loans to brokers at the stock exchange soared to 70% and, with brokers unable to get money, stock prices fell to a low not seen since December 1900.[32] The panic quickly spread to two other large trusts, Trust Company of America and Lincoln Trust Company. By Thursday, October 24, a chain of failures littered the street: Twelfth Ward Bank, Empire City Savings Bank, Hamilton Bank of New York, First National Bank of Brooklyn, International Trust Company of New York, Williamsburg Trust Company of Brooklyn, Borough Bank of Brooklyn, Jenkins Trust Company of Brooklyn and the Union Trust Company of Providence.[33]
When the chaos began to shake the confidence of New York's banks, the city's most famous banker was out of town.J. P. Morgan, the eponymous president ofJ.P. Morgan & Co., was attending a church convention inRichmond, Virginia. Morgan was not only the city's wealthiest and most well-connected banker, but he had experience with other similar financial crises—he had helped rescue theU.S. Treasury during thePanic of 1893. As news of the crisis gathered, Morgan returned to Wall Street from his convention late on the night of Saturday, October 19. The following morning, thelibrary of Morgan'sbrownstone at Madison Avenue and 36th St. had become a revolving door of New York City bank and trust company presidents arriving to share information about (and seek help surviving) the impending crisis.[34][35]
Morgan and his associates examined the books of the Knickerbocker Trust and decided it was insolvent, so they did not intervene to stop the run. Its failure, however, triggered runs on even healthy trusts, prompting Morgan to take charge of the rescue operation. On the afternoon of Tuesday, October 22, the president of the Trust Company of America asked Morgan for assistance. That evening Morgan conferred withGeorge F. Baker, the president of First National Bank,James Stillman of the National City Bank of New York (the ancestor ofCitibank), and theUnited States Secretary of the Treasury,George B. Cortelyou. Cortelyou said that he was ready to deposit government money in the banks to help shore up their deposits. After an overnight audit of the Trust Company of America showed the institution to be sound, on Wednesday afternoon Morgan declared, "This is the place to stop the trouble, then."[36]
As a run began on the Trust Company of America, Morgan worked with Stillman and Baker to liquidate the company's assets to allow the bank to pay depositors. The bank survived to the close of business, but Morgan knew that additional money would be needed to keep it solvent through the following day. That night he assembled the presidents of the other trust companies and held them in a meeting until midnight, when they agreed to provide loans of $8.25 million to allow the Trust Company of America to stay open the next day.[37] On Thursday morning Cortelyou deposited around $25 million into a number of New York banks.[38]John D. Rockefeller, the wealthiest man in the United States, deposited a further $10 million in Stillman's National City Bank.[38] Rockefeller's massive deposit left the National City Bank with the deepest reserves of any bank in the city. To instill public confidence, Rockefeller phonedMelville Stone, the manager of theAssociated Press, and told him that he would pledge half of his wealth to maintain U.S. credit.[39]
Despite the infusion of cash, the banks of New York were reluctant to make the short-term loans they typically provided to facilitate daily stock trades. Prices on the exchange began tocrash, owing to the lack of funds to finance purchases. At 1:30 p.m. Thursday, October 24,Ransom Thomas, the president of theNew York Stock Exchange, rushed to Morgan's offices to tell him that he would have to close the exchange early. Morgan was emphatic that an early close of the exchange would be catastrophic.[40][41]
Morgan summoned the presidents of the city's banks to his office. They started to arrive at 2 p.m.; Morgan informed them that as many as 50 stock exchange houses would fail unless $25 million was raised in 10 minutes. By 2:16 p.m., 14 bank presidents had pledged $23.6 million to keep the stock exchange afloat. The money reached the market at 2:30 p.m., in time to finish the day's trading, and by the 3 o'clock market close, $19 million had been loaned out. Disaster was averted. Morgan usually eschewed the press, but as he left his offices that night he made a statement to reporters: "If people will keep their money in the banks, everything will be all right".[42]
Friday, however, saw more panic on the exchange. Morgan again approached the bank presidents, but this time was only able to convince them to pledge $9.7 million. In order for this money to keep the exchange open, Morgan decided the money could not be used formargin sales. The volume of trading on Friday was two-thirds that of Thursday. The markets again narrowly made it to the closing bell.[43]
Morgan, Stillman, Baker and the other city bankers were unable to pool money indefinitely. Even the U.S. Treasury was low on funds. Public confidence needed to be restored, and on Friday evening the bankers formed two committees—one to persuade the clergy to calm their congregations on Sunday, and a second to explain to the press the various aspects of the financial rescue package. Europe's most famous banker,Lord Rothschild, sent word of his "admiration and respect" for Morgan.[44] In an attempt to gather confidence, the Treasury Secretary Cortelyou agreed that if he returned to Washington it would send a signal to Wall Street that the worst had passed.[45][46]
To ensure a free flow of funds on Monday, the New York Clearing House issued $100 million in loan certificates to be traded between banks to settle balances, allowing them to retain cash reserves for depositors.[47] Reassured both by the clergy and the newspapers, and with bank balance sheets flush with cash, a sense of order returned to New York that Monday.[48]
Unbeknownst to Wall Street, a new crisis was being averted in the background. On Sunday, Morgan's associate,George Perkins, was informed that the City of New York required at least $20 million by November 1 or it would go bankrupt. The city tried to raise money through a standard bond issue, but failed to gather enough financing. On Monday and again on Tuesday,New York MayorGeorge McClellan approached Morgan for assistance. In an effort to avoid the disastrous signal that a New York City bankruptcy would send, Morgan contracted to purchase $30 million worth of city bonds.[49][46]
Although calm was largely restored in New York by Saturday, November 2, yet another crisis loomed. One of the exchange's largest brokerage firms,Moore & Schley, was heavily in debt and in danger of collapse. The firm had borrowed heavily, using shares of theTennessee Coal, Iron and Railroad Company (TC&I) as collateral. With the value of the thinly traded stock under downward pressure (meaning the price was declining), many banks would likely call the loans of Moore & Schley on Monday and force anen masse liquidation of the firm's stock. If that occurred it would send TC&I shares plummeting, devastating Moore and Schley and triggering further panic in the market.[50]
To avert the collapse of Moore & Schley, Morgan called an emergency conference at hislibrary Saturday morning. A proposal was made that theU.S. Steel Corporation, a company Morgan had helped form through the merger of the steel companies ofAndrew Carnegie andElbert Gary, would acquire TC&I. This would effectively save Moore & Schley and avert the crisis. The executives and board of U.S. Steel studied the situation and offered to either loan Moore & Schley $5 million, or buy TC&I for $90 a share. By 7 p.m. an agreement had not been reached and the meeting adjourned.[51]
By then, Morgan was drawn into another situation. There was deep concern that the Trust Company of America and the Lincoln Trust might fail to open on Monday due to continuing runs by depositors. On Saturday evening 40–50 bankers gathered at the library to discuss the crisis, with the clearing-house bank presidents in the East room and the trust company executives in the West room. Morgan and those dealing with the Moore & Schley situation moved to the librarian's office. There Morgan told his counselors that he would agree to help shore up Moore & Schley only if the trust companies would work together to bail out their weakest brethren.[52] The discussion among the bankers continued late into Saturday night but without much progress. Around midnight, J. P. Morgan informed a leader of the trust company presidents that keeping Moore & Schley afloat would require $25 million, and he would not commit those funds unless the problems with the trust companies could also be resolved. The trust company executives understood they would not receive further help from Morgan; they would have to finance any bailout of the two struggling trust companies.
At 3 a.m. about 120 bank and trust company officials assembled to hear a full report on the status of the failing trust companies. While the Trust Company of America was barely solvent, the Lincoln Trust Company was probably $1 million short of what it needed to cover depositor accounts. As discussion ensued, the bankers realized that Morgan had locked them in the library and pocketed the key to force a solution,[53] the sort of strong-arm tactic he had been known to use in the past.[54] Morgan then entered the talks and advised the trust companies that they must provide a loan of $25 million to save the weaker institutions. The trust presidents were still reluctant to act, but Morgan informed them that if they did not it would lead to a complete collapse of the banking system. Through his considerable influence, at about 4:45 a.m. he persuaded the unofficial leader of the trust companies to sign the agreement, and the remainder of the bankers followed.[54] Having received these commitments, Morgan allowed the bankers to go home.[55]
On Sunday afternoon and into the evening, Morgan, Perkins, Baker and Stillman, along with U.S. Steel's Gary andHenry Clay Frick, worked at the library to finalize the deal for U.S. Steel to buy TC&I and by Sunday night had a plan for acquisition. But one obstacle remained: theanti-trust crusading PresidentTheodore Roosevelt, who had made breaking upmonopolies a focus of his presidency.[56]
Frick and Gary traveled overnight by train to theWhite House to implore Roosevelt to set aside the application of theSherman Antitrust Act and allow—before the market opened—a company that already held a 60% share of the steel market to make a large acquisition. Roosevelt's secretary refused to see them, but Frick and Gary convincedJames Rudolph Garfield, theSecretary of the Interior, to bypass the secretary and arrange a meeting with the president. With less than an hour before the Stock Exchange opened, Roosevelt andSecretary of StateElihu Root began to review the proposed takeover and appreciate the crash likely to ensue if the merger was not approved.[57][58] Roosevelt relented; he later recalled of the meeting, "It was necessary for me to decide on the instant before the Stock Exchange opened, for the situation in New York was such that any hour might be vital. I do not believe that anyone could justly criticize me for saying that I would not feel like objecting to the purchase under those circumstances".[57] When news reached New York, confidence soared. TheCommercial & Financial Chronicle reported that "the relief furnished by this transaction was instant and far-reaching".[59] The final crisis of the panic had been averted.[60]
The panic of 1907 occurred during a lengthyeconomic contraction, measured by theNational Bureau of Economic Research as occurring between May 1907 and June 1908.[61][62] The interrelated contraction, bank panic, and falling stock market resulted in significant economic disruption. Industrial production dropped further than after any previous bank run, and 1907 saw the second-highest volume of bankruptcies to that date. Production fell by 11% and imports by 26%, while unemployment rose to 8% from under 3%. Immigration dropped to 750,000 people in 1909, from 1.2 million two years earlier.[63]
Since the end of theCivil War, the United States had experienced panics of varying severity. EconomistsCharles Calomiris and Gary Gorton rate the worst panics as those leading to widespread bank suspensions: the panics of1873,1893, and 1907, and a suspension in 1914. Widespread suspensions were forestalled through coordinated actions during the1884 and1890 panics. A bankcrisis in 1896, in which there was a perceived need for coordination, is also sometimes classified as a panic.[62]
The frequency of crises and the severity of the 1907 panic added to concern about the outsized role of J.P. Morgan and renewed impetus toward a national debate on reform.[64] In May 1908, Congress passed theAldrich–Vreeland Act, which established theNational Monetary Commission to investigate the panic and to propose legislation to regulate banking.[65]
A significant difference between the European and U.S. banking systems was the absence of acentral bank in the United States. European states were able to extend thesupply of money during periods of low cash reserves. The belief that the U.S. economy was vulnerable without a central bank was not new. Early in 1907, bankerJacob Schiff ofKuhn, Loeb & Co. warned in a speech to the New York Chamber of Commerce that "unless we have a central bank with adequate control of credit resources, this country is going to undergo the most severe and far reaching money panic in its history".[66]
In 1908:Frank A. Vanderlip led a U.S. business delegation to Japan to meet with Japanese financial leaders including Taka Kawada,Shibusawa Eiichi and his son Shibusawa Masao, also founding members ofMitsui & Co.,Takuma Dan &Takamine Mitsui with the goal of allying with Japan to resolve the Panic of 1907 and the unstable U.S. stock market.[67]
Aldrich convened a secret conference with a number of the nation's leading financiers at theJekyll Island Club, off the coast ofGeorgia, to discuss monetary policy and the banking system in November 1910. Aldrich andA. P. Andrew (Assistant Secretary of the Treasury Department),Paul Warburg (representing Kuhn, Loeb & Co.),Frank A. Vanderlip (James Stillman's successor as president of the National City Bank of New York),Henry P. Davison (senior partner of J. P. Morgan Company),Charles D. Norton (president of the Morgan-dominated First National Bank of New York), andBenjamin Strong (representing J. P. Morgan), produced a design for a "National Reserve Bank".[68]
The final report of the National Monetary Commission was published on January 11, 1911. For nearly two years legislators debated the proposal, and it was not until December 23, 1913, that Congress passed theFederal Reserve Act. PresidentWoodrow Wilson signed the legislation immediately, and the legislation was enacted on the same day, creating theFederal Reserve System.[69]Charles Hamlin became the Fed's first chairman, and none other than Morgan's deputyBenjamin Strong became president of theFederal Reserve Bank of New York, the most important regional bank, with a permanent seat on theFederal Open Market Committee.[69]
Although Morgan was briefly seen as a hero, widespread fears concerningplutocracy and concentrated wealth soon eroded this view. Morgan's bank had survived, but the trust companies that were a growing rival to traditional banks were badly damaged. Some analysts believed that the panic had been engineered to damage confidence in trust companies so that banks would benefit.[70][71] Others believed Morgan took advantage of the panic to allow his U.S. Steel company to acquire TC&I.[72] Although Morgan lost $21 million in the panic, and the significance of the role he played in staving off worse disaster is undisputed, he also became the focus of intense scrutiny and criticism.[58][73][74]
The chair of theHouse Committee on Banking and Currency, RepresentativeArsène Pujo (D–La.7th), convened a special committee to investigate a "money trust", thede facto monopoly of Morgan and New York's other most powerful bankers. The committee issued a scathing report on the banking trade and found that the officers ofJ. P. Morgan & Co. also sat on the boards of directors of 112 corporations with a market capitalization of $22.5 billion (the total capitalization of theNew York Stock Exchange was then estimated at $26.5 billion).[75]
Although suffering ill health, J. P. Morgan testified before the Pujo Committee and faced several days of questioning fromSamuel Untermyer. Untermyer and Morgan's famous exchange on the fundamentally psychological nature of banking—that it is an industry built on trust—is often quoted in business articles:[76][77]
Untermyer: Is not commercial credit based primarily upon money or property?
Morgan: No, sir. The first thing is character.
Untermyer: Before money or property?
Morgan: Before money or anything else. Money cannot buy it … a man I do not trust could not get money from me on all the bonds in Christendom.[76]
Associates of Morgan blamed his continued physical decline on the hearings. He became ill in February and died on March 31, 1913, nine months before the Federal Reserve officially replaced the "money trust" aslender of last resort.[76]
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