Contact Mary Suiter

Posted: 03/29/2007
Fed resource: Panic of 1907
Short description: Suggestions for Using the Publication, "Panic of 1907," in the Classroom
Lesson time: 90 minutes
Materials: a copy of the publication, "Panic of 1907" and a copy of a highlight marker for each student, Optional copy of "It's a Wonderful Life" video or DVD
Audience: High School
Grades: 9, 10, 11, 12
Subjects: Economic History
Concepts: Economic History - Bank Panics, Business Cycles, Early Banking, Historical Figures
Documents: None
This publication describes how the banking panic of 1907 developed, spread, and was resolved. It includes a chronology and newspaper excerpts from the period. It uses the bank panic of 1907 as an example of the bank panic period from the 1860s to 1913, a time in United States history characterized by bank runs and an overall lack of confidence in the banking industry.
1. Ask students the following questions.
A. What would you do if you heard that your bank was going out of business? (Go to the bank to withdraw money, go online to withdraw money, switch to another bank)
B. What would you do if you heard that your bank was running out of money? (Try to withdraw cash for safekeeping.)
C. How might it affect depositors if they did not have confidence in the ability of their bank to give them access to the funds in their account(s) when they wanted them? (Depositors might choose to keep their money at home instead of depositing it in banks.)
D. What might happen to the bank? (Banks would have less money in accounts at the bank so they would have less money to lend.)
E. What might happen if some banks failed to give depositors access to their funds? (The customers of those banks would be very upset, and the customers of other banks might become worried and try to withdraw their funds, too.)

2. Explain that when people lose confidence in the banking system. The entire banking system could become unstable. People could choose to not deposit their money in banks. People could have difficulty obtaining loans from banks. Banks might not be able to make as many, interest rates might rise significantly.

3. Ask the students if they know of any safeguards that are in place to protect depositors and help maintain depositor confidence. (Answers will vary.)

4. Point out that there is an agency called the Federal Deposit Insurance Corporation (FDIC). The role of the FDIC is to insure depositors against loss up to $100,000 per person per banking institution.

5. Consider showing clips from the movie, “It’s a Wonderful Life,” that show how bank panics happen and/or impact people.
6. Explain that bank panics occur when many, many depositors lose confidence in the banking system and try to take their deposits from their accounts at the same time.

Working with the text:
7. Distribute a copy of, "Panic of 1907" to each student and have the students read page 1 of the brochure, “Crash, Crash, Crash,” and review the background for the banking panic of 1907.

8. Have students preview the content in the brochure by reading Part II Chronology on pages 12-13.

9. List the problems below on the board.
i. The financial empire of F. Augustus Heinze begins to unravel (pp. 3-4).
ii. C.W. Morse of Mercantile National Bank resigns his seat on the bank’s board of directors (pp. 4-5).
iii.The Clearing House members’ pledge to provide cash to meet the needs of Mercantile National does not help the situation (pp. 5-6).
iv. Depositors of Knickerbocker Trust Company start a run on the bank (pp. 5-6).
v. Morgan’s decision to aid Trust Company of America as well as the pledges by the U.S. Treasury and others failed to prevent runs (pp. 6-7).
vi.Improvements seemed to occur, but just as things seemed to be improving for banks and the stock market, NYC’s finances took a turn for the worse (pp. 8-11).
10. Give students a highlight marker. Tell students, as they read, to use the markers to highlight problems, causes, effects and solutions for each of the problems.

11. Allow time for students to read.

12. Divide the class into pairs. Tell each pair of students to summarize the cause, effect and/or solution of each of the six problems.

13. Model the first one for the students as follows.
   The first problem is that the financial empire of F. Augustus Heinze begins to unravel, which is described on page 3. The cause was that Heinze overextended himself by trying to gain control of the stock of United Copper Company. Heinze was involved in banking and resigned as president of Mercantile National Bank. His associate, C.W. Morse, also of Mercantile National Bank, resigned from the bank’s board of directors. The bank was in trouble. The solution was that the New York Clearing House Committee decided to extend Mercantile National the credit and aid it needed to meet the demands of depositors, that is, cover the withdrawals of depositors.

14. Have students work with their partner to develop two speeches. Choose students to share their speeches with the class.
a. The first speech should have F. Augustus Heinze apologizing to the public and describing why he is at fault for starting the Panic of 1907 and the effect that his actions had.
b. The second speech should have J. Pierpont Morgan accepting an award from the banking industry for his role in the alleviating the Panic. He should explain the actions he took to help restore confidence in the banking institutions and how his actions helped improve the situation.

15. As an extension activity, instruct students to conduct research to determine the characteristics of modern-day banking that resulted from the Panic of 1907.

16. Have students write additional newspaper headlines that might have appeared during this period.

Submitted by: Sara Messina
Federal Reserve Bank of Atlanta, Jacksonville Branch