The Federal Reserve Act of 1913: History and Digest

ON MONDAY, October 21, 1907, the National Bank of Commerce of New York City announced its refusal to clear for the Knickerbocker Trust Company of the same city. The trust company had deposits amounting to $62,000,000. The next day, following a run of three hours, the Knickerbocker Trust Company paid out $8,000,000 and then suspended.

One immediate result was that banks, acting independently, held on tight to the cash they had in their vaults, and money went to a premium. According to the exp...