On August 24, 1857, the New York Branch of the Ohio Life Insurance and Trust Company failed due to widespread embezzlement, precipitating the Panic of 1857. Following this large trust company’s collapse, New York banks placed restrictions on transactions. Investors interpreted the restrictions as signs of an impending economic disaster and withdrew as much of their money as they could.
The Panic of 1857 contributed to a sharp economic downturn that lasted for eighteen months and spread to Europe and the Middle East. Other factors that contributed to the larger downturn included the failure of the overbuilt railroads and the sinking of the SS Central America, a large steamship carrying 30,000 pounds of gold intended for eastern banks. The loss of so much gold the second major blow to a financial system where banks still dealt in specie. Economic recovery was slow and uneven and was not complete until the United States had entered the Civil War.
Laurel Billings, EVHP Staff