The House of Morgan: an American Banking Dynasty and the Rise of Modern Finance by Ron Chernov
J. Pierpont Morgan’s actions during the Panic of 1907 solidified the bank’s reputation and firmly established it as the most powerful and influential bank of its era. The stock market crash in 1907 spurned both a run on banks as people tried to withdraw their money, as well as the massive selling of trust stocks. J. Pierpont Morgan engineered a plan that saved numerous brokerage houses, kept the stock market open and bailed out the city of New York. In 1907, almost half of the loans made by New York banks were backed by securities as collateral and the trusts didn’t keep the cash reserves of the commercial banks on hand, making them vulnerable to runs in a time of panic. At the time, there was very little government regulation on banks and trust companies. There was also no central bank to regulate the money supply or the stock exchange. The direct result of the Panic of 1907 was the Federal Reserve System. The Fed consisted of twelve regional reserve banks placed under a central federal authority. This gave the government the ability to offset sudden credit contraction in the private sector to keep banks, brokerages, and trust companies solvent in times of crisis....
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