Indeed, the Federal Reserve arguably owes its creation, which followed the Panic of 1907, at least in part to the insurance industry. Some scholars have argued that it was the catastrophic 1906 San Francisco earthquake that caused the Panic of 1907.11 The 1906 earthquake left over half of San Francisco homeless.
Such widespread destruction of one of the country’s largest cities had a commensurate effect on the economy and insurance industry. Fearing that the U.S. financial markets could not absorb that many dollars in asset sales, many European insurers paid claims by withdrawing money from foreign banks and shipping gold across the Atlantic. The Bank of England’s gold supply accordingly dropped 14 percent.