Bank Panics Before the Civil War

8 Items to Learn About Banks and Bailouts #2

Here's a short glance at some, but not all, of the banking panics that struck our nation before the Civil War. One thing to remember when reading these short paragraphs is that when a bank went under, the depositors lost everything.

Panic of 1819 - After the War of 1812, there was a period of economic expansion. This expansion ended with the Panic of 1819. Although there had been previous downturns in our economy, this was the first crisis within the American economic system. There were many causes. In 1815, years and years of conflict between the French and British came to an end, which meant that they would no longer be importing as many goods for the U.S. During the boom cycle, Americans had been purchasing western land as if the good times would never end. Western banks were all too happy to make the loans. The Second Bank of the United States then began employing rather conservative credit policies in response to what they perceived as reckless lending practices. Loans were called in, and many landowners could not repay. Mortgages went unpaid. Unemployment became rampant. President Monroe would respond conservatively maintaining a sound fiscal policy. Congress was a bit more ambitious passing the Land Act of 1820 and the Relief Act of 1821. No matter, the panic would last until 1923. (Source, Source, Source, Source)

Panic of 1837 -This depression would begin in 1837 and last until 1943. It was a period of misery with the usual rampant unemployment, with major food riots taking place in American cities. The period of prosperity before the panic was based on a speculative bubble in real estate. People were buying up federal land as quickly as possible and paying in state bank notes. Andrew Jackson would institute the Specie Circular near the end of his second term which required the Treasury to only accept gold and silver as payment for public land sales. The result was rapid inflation. Banks called in loans as depositors tried to withdraw their accounts.Over 40% of our nation's banks would fail. President Van Buren, who took over from Jackson, did not believe the government had a responsibility to help the economy, which may have led to the Whigs capturing the White House for the first time. (Source, Source, Source)

Panic of 1857 -The Ohio Life Insurance and Trust Company would fail in the midst of a major financial scandal. A hurricane would destroy a boat carrying a large shipment of Gold of which the banks were in need. British investors would begin removing funds from American banks. Grain prices would fall. Railroad companies were failing. Unemployment was spreading. A severe depression would engulf the nation. To combat the depression, the government began selling bonds and would also reduce tariffs. Some states tried bank holidays to stop the runs on their banks. Ultimately, the effects of the depression were felt until the Civil War. (Source, Source, Source)