Tom Williams / CQ-Roll Call , Inc . via Getty Images

By Elliot Chambers and Mark Higgins

“ The Bank bubbles are breaking … the merchants are crumbling to ruin , the manufacturers perishing … there seems to be no remedy but time and patience , and the changes of events which time affects .”

President John Quincy Adams

On March 10 , 2023 , the FDIC placed Silicon Valley Bank ( SVB ) in receivership after depositors drained their accounts in a classic bank run . SVB ’ s failure also exposed a systemic vulnerability in the US banking system . Depositors with balances exceeding the FDIC insurance cap of $ 250,000

Representatives ( left to right ) French Hill , Blaine Luetkemeyer , Bill Huizenga and Ann Wagner attend the House Financial Services Committee hearing titled “ The Federal Regulators ’ Response to Recent Bank Failures ,” on March 29 , 2023 . Martin Gruenberg , chairman of the Federal Deposit Insurance Corporation ; Michael Barr , vice chair for supervision of the Board of Governors of the Federal Reserve System ; and Nellie Liang , undersecretary for Domestic Finance , US Department of the Treasury , testified . suddenly had a rational incentive to withdraw funds . Realizing that a full-blown run on the banking system was imminent , the Fed quickly invoked Section 13 ( 3 ) of the Federal Reserve Act and created an emergency lending facility to back uninsured depositors . The quick response has thus far prevented a catastrophic financial crisis , although a series of downgrades by Moody ’ s on August 8 , 2023 demonstrates that risks in the banking system remain .

Throughout history , financial policymakers have used lessons from prior financial crises to prevent recurrence . The challenge , however , is that after each successful intervention , people begin questioning the necessity of the resulting safeguards . Over time , skepticism intensifies as the memory of past crises steadily disappears from the collective consciousness . The only reliable solution is to regularly revisit the past and re-learn the lessons that Americans in the past acquired through the more memorable experience of suffering .

This article recounts the Panic of 1819 , which is a long-forgotten financial catastrophe . The Panic was caused by the convergence of several powerful economic currents , but the devastation was significantly amplified by the unconstrained spread of bank runs . Americans suffered a painful and long-lasting depression in the early 1820s , yet they failed to create adequate safeguards in the aftermath . As a result , similar catastrophes occurred in the 1840s and 1930s . In 2008 , the United States used lessons from the past to prevent the nation ’ s fourth Great Depression-level event . Several lessons were also used in March 2023 to contain the damage of the SVB bank run .

The Panic of 1819

“ The demand for lands since the 1st of July seems as great as ever ; all payments are made in the Mississippi Stock — which is sold at 25 percent discount … the demand for lands is so great I have not time within office hours to attend to my returns or books .”

Nicholas Gray , Land Office Clerk , 1816

In the aftermath of major financial crises , politicians , members of the media and the public at large tend to blame a small group of “ bad actors .” This disguises the truth that large-scale financial crises only happen when multiple , powerful market

12 FINANCIAL HISTORY | Summer 2023 | www . MoAF . org