Document Type

Case Study

Case Series

Broad-Based Emergency Liquidity

JEL Codes

G01, G28


Signs of financial panic had marked the months leading up to mid-October 1907 when depositors began to run on banks and trust companies across New York City, most notably the Knickerbocker Trust Company, then New York City’s third largest, on October 22. Cash injections from the US Treasury and from leading banker J.P. Morgan failed to reassure depositors and investors. On October 26, the New York Clearinghouse (NYCH), whose membership included most banks in New York, voted to issue clearinghouse loan certificates (CLCs) to help stabilize the financial panic. CLCs were collateralized by securities and could be used among members for settlement and to free up cash for other uses. NYCH banks also limited cash payments to depositors—including out-of-state national banks—to preserve reserves, paying instead in certified checks backed by the clearinghouse. Clearinghouses in other cities quickly followed suit by issuing CLCs and limiting cash payments. Outstanding NYCH CLCs peaked at $88 million on December 16 before gold imports from Europe expanded the supply of legal tender. Cash payments resumed in January 1908 after most borrowers decided to redeem their CLCs. By the time the NYCH canceled the last remaining CLCs in March, it had issued more than twice as many CLCs than in any previous crisis. While the NYCH’s actions stabilized the financial panic, some criticized the three-month limitation of payments as unnecessary. The failure of the NYCH to issue certificates sooner, and the depth of the Panic of 1907, catalyzed the movement for a federal reserve system.

Date Revised