The Panic of 1857 was a financial panic in the United States caused by the declining international economy and over-expansion of the domestic economy.
The New York branch of the Ohio Life Insurance and Trust Company failed on August 24, 1857. Soon, all across the nation, banks began to collapse. It emerged that the entire capital of the trust’s home office had been embezzled.
Because of the invention of the telegraph by Samuel F. Morse in 1844, the Panic of 1857 was the first financial crisis to spread rapidly throughout the United States. The world economy was also more interconnected by the 1850s, which also made the Panic of 1857 the first worldwide economic crisis. In Britain, the Palmerston government circumvented the requirements of the Bank Charter Act 1844, which required gold and silver reserves to back up the amount of money in circulation. Surfacing news of this circumvention set off the Panic in Britain.
Beginning in September 1857, the financial downturn did not last long, but a proper recovery was not seen until the American Civil War, in 1861. The sinking of SS Central America contributed to the panic of 1857, as New York banks were awaiting a much-needed shipment of gold. American banks did not recover until after the civil war. After the failure of Ohio Life Insurance and Trust Company, the financial panic quickly spread as businesses began to fail, the railroad industry experienced financial declines, and hundreds of workers were laid off.
Because the years immediately before the Panic of 1857 were prosperous, many banks, merchants, and farmers had seized the opportunity to take risks with their investments, and, as soon as market prices began to fall, they quickly began to experience the effects of financial panic.
President James Buchanan proposed to Congress that the Treasury be authorized to sell revenue bonds for the first time since the Mexican-American War. In December, Buchanan propounded his new strategy of “reform not relief,” asserting that “the government sympathized but could do nothing to alleviate the suffering of individuals.” To avoid further financial panics, Buchanan encouraged Congress to pass a law requiring any banks that suspended their gold or silver payments to immediately forfeit their charters. He also asked state banks to keep one dollar in gold or silver for every three they issued as paper.