The Ohio Banking Panic of 1854

Abstract

In the fall of 1854, a banking panic began in Ohio. Twelve banks failed, representing a sizable portion of the state’s deposits and wiped out the state-chartered class of banks. Bank failures in Illinois, Kentucky, Michigan, and Maryland soon followed. The State Bank of Ohio survived the panic, closing only one branch. All private banks survived, while all of the banks chartered prior to free banking failed. The causes of the panic lie in the bank tax imposed several years earlier and speculation in railroad securities. During the panic, banks in Ohio relied heavily on their correspondent banks in New York City, resulting in a drop in deposits. Prior research attributed this drop in funds directly to the election in November. However, the drop in funds began weeks before the election took place. These effects not only raise issues concerning the political economy of state bank chartering and taxes on banks, but the inability of state regulators to foresee the much larger panic in 1857 that had its roots in the same causes as the panic of 1854.

Keywords: Banking panics, bank regulation, bank taxes

JEL Classification: E44, G21, N11, N21