Sometimes Bad Things Happen to Good Trust Companies: A Reexamination of the Trust Company Panic of 1907
39 Pages Posted: 6 Jul 2011
Date Written: July 4, 2011
The runs on trust companies during the Panic of 1907 have been blamed on unregulated financial innovation. New York trust companies are said to have taken advantage of gaps in regulation to engage in risky behavior, ultimately causing depositors to lose confidence in trust companies. This paper shows that there was not a general loss of confidence in trust companies. Runs were concentrated on a specific group of trust companies: the uptown trust companies. But there is no evidence of mismanagement or unusually risky asset allocation among these companies. Instead, it was the nature of their deposits that made them more susceptible to runs. While traditional trust companies focused on small numbers of large deposits from businesses, the uptown trust companies had large numbers of household deposits.
Keywords: panic of 1907, trust companies
JEL Classification: N21
Suggested Citation: Suggested Citation