THE PANIC OF 1907.

THE PANIC OF 1907. The Panic of 1907 led to the creation of the Federal Reserve Bank, the central bank of the United States. The Panic led to runs on banks. Wikipedia says, “Complete ruin of the national economy was averted when J.P. Morgan stepped in to meet the crisis. Morgan organized a team of bank and trust executives. The team redirected money between banks, secured further international lines of credit, and bought plummeting stocks of healthy corporations. Within a few weeks the panic passed, with only minimal effects on the country.” Morgan was doing what Bagehot said a central bank should do. The Federal Reserve Bank can be thought of as an institutional replacement for J. P. Morgan.