The New York Branch Of The Ohio Life Insurance And Trust Company Fails

The major financial catalyst for the panic of 1857 was the August 24, 1857, failure of the New York branch of the Ohio Life Insurance and Trust Company.

It was soon reported that the entire capital of the Trust's home office had been embezzled. What followed was one of the most severe economic crises in U.S. history.

Almost immediately, New York bankers put severe restrictions on even the most routine transactions. In turn, many people interpreted these restrictions as a sign of impending financial collapse and panicked. Individual holders of stock and of commercial paper rushed to their brokers and eagerly made deals that "a week before they would have shunned as a ruinous sacrifice." As the September 12, 1857, Harper's Weekly described the scene on the New York Stock Exchange, "…prominent stocks fell eight or ten per cent in a day, and fortunes were made and lost between ten o'clock in the morning and four of the afternoon."

The Report of the Clearinghouse Committee, produced in the years following the panic of 1857, found that "A financial panic has been likened to a malignant epidemic, which kills more by terror than by real disease." Yet behind the reaction of New York's bankers to the closing of a trust company lay a confluence of national and international events that heightened concern.

The Panic of 1857 was a sudden downturn in the economy of the United States that occurred in 1857. A general recession first emerged late in 1856, but the successive failure of banks and businesses that characterized the panic began in mid-1857. While the overall economic downturn was brief, the recovery was unequal, and the lasting impact was more political than economic. The panic began with a loss of confidence in an Ohio bank, but spread as railroads failed, and fears that the US Federal Government would be unable to pay obligations in specie mounted. More than 5,000 American businesses failed within a year, and unemployment was accompanied by protest meetings in urban areas. From its peak in 1852, to its trough in 1857, the stock market declined by 66% compared with inflation. Eventually the panic and depression spread to Europe, South America and the Far East. No recovery was evident in the northern parts of the United States for a year and a half, and the full impact did not dissipate until the American Civil War.