For ten or twelve years immediately preceding the panic of 1907, there was a steady increase in prices generally and in all forms of commercial and industrial activities, legitimate and speculative. Large sums of money were required and used in the development and equipment of railroads, oil and mining properties, and manufacturing and business undertakings generally, and large blocks of stocks and bonds of a highly speculative character were forced upon the market, a considerable portion of which were of a fraudulent and criminal nature.

It was impossible under such a condition of affairs to draw the line absolutely between legitimate and conservative enterprises and speculative ventures which absorbed credits and tied up in the form of fixed and unproductive investments such a large proportion of the working capital of the country that there was not sufficient left to meet the demands of legitimate business and to finance the enterprises which had been undertaken.

As is usual under such conditions, the tightening of the money market was the first symptom of approaching danger and the first indication of liquidation manifested itself in the stock market by a decline in stock and bond quotations. Loans became difficult to obtain or to renew, and interest rates increased.

It was, of course, natural, and probably inevitable, that under such a condition of expansion it required only an incident to produce or precipitate a first-class panic, involving not only speculative and fraudulent ventures, but also legitimate and conservative undertakings as well.

The immediate incident which precipitated the panic of 1907 was the collapse of the corner in the stock of the United States Copper Company, which had been engineered by the firm of Otto Heinze & Company, composed of the brothers and associates of F. Augustus Heinze, of Montana. In the summer of 1907, F. Augustus Heinze made his appearance upon the financial stage in New York City, having obtained control of enough stock of the Mercantile National Bank of that city to secure his election to the presidency of that institution.

The Mercantile National Bank was a very old and reputable institution. It was originally organized as a State Bank in 1850, under the name of the Mercantile Bank, and was converted into a national association April 15, 1865, under the title The Mer-cantile National Bank. The capital stock of this association at the time Heinze secured control was $3,000,000. Its total resources and liabilities were $31,859,358 respectively, and its deposit liabilities were over $22,000,000.

After acquiring control of the management of this bank Heinze appears to have employed the resources of the institution to a considerable extent in furtherance of his copper enterprises and speculations, until the creditors of the bank became suspicious and distrustful of his operations and commenced to withdraw their funds. The failure of the copper corner brought matters to a crisis, and the bank, being unable to meet its clearings, was compelled to appeal to the Clearing House Association for assistance. An examination of the association was made by a committee of the Clearing House for the purpose of determining its condition, which showed that it was not only solvent, but had a large surplus intact after eliminating every loan to the Heinze interests which was considered doubtful or worthless. The Clearing House Association therefore determined to support the bank, upon the condition that Heinze and his entire board of directors would resign and retire from the management of the association. On the morning of October 21, 1907, the bank opened for business under an entirely new board of directors, Heinze and his associates having been eliminated. The support of the Clearing House Association, however, did not prove sufficient. Withdrawals continued, and a run was started upon the Knickerbocker Trust Company, which was believed to be in a badly extended condition and was under suspicion because of the relations of its president, Charles T. Barney, with Charles W. Morse in his speculations.

The capital of the Trust Company was $1,200,000, and its deposits were over $48,000,000. The run upon this institution continued with such persistency that the company was compelled to close its doors on October 22. The suspension of this institution seriously aggravated the situation and added to the spirit of unrest which prevailed, resulting in protracted runs upon a number of banks and trust companies, and the failure of ten State banks, two trust companies and one national bank in New York City and vicinity. The Mercantile National Bank was unable to recover from the strain to which it was subjected under the Heinze-Morse regime and was compelled to go into voluntary liquidation in January following.

These successive failures led to the issuing of Clearing House certificates by the New York City banks, and similar action was followed by nearly all the banks in all the large cities throughout the country.

If this banking crisis had not been precipitated in New York City by the suspicion and distrust of Heinze, Morse and their associates, although conditions were ripe for a panic, it is reasonable to assume that the liquidation that had been going on in the stock market would have proceeded more slowly and quietly and that nothing more serious than a gradual decline in business activities would have occurred, instead of the widespread panic which followed.

Aetna Banking and Trust Company of Butte, Mont. F. Augustus Heinze had also been connected with the Aetna Banking and Trust Company of Butte, Mont., which had a branch office in Washington, D. C. This branch had been in operation for some time before banks in the District of Columbia, other than national and trust companies, organized under Federal laws, were placed under the supervision of the Comptroller of the Currency. When all banks in the District of Columbia, no matter under what authority organized, were by Act of Congress placed under the Comptroller's supervision, the Washington branch of the Aetna Bank and Trust Company was the first of this class of banks to be examined by the national bank examiner, because of numerous inquiries the Comptroller had previously received from time to time as to its financial standing and methods of operation.