The price of securities had begun to…
March 1792 CE
One of the primary causes of the sudden run on the bank is the failure of a scheme created by William Duer, Alexander Macomb and other bankers in the winter of 1791.
Duer and Macomb’s plan had been to use large loans to gain control of the US debt securities market because other investors needs those securities to make payments on stocks in the Bank of the United States.
Additionally, Duer and Macomb have been able to create their own credit by endorsing one another’s notes, and have dones so in hopes of creating a new bank in New York to overtake the existing Bank of New York.
On March 9, 1792 Duer stops making payments to his creditors and simultaneously faces a lawsuit for actions he had taken as Secretary of the Treasury Board in the 1780s.
As Duer and Macomb default on their contracts and find themselves in prison, the price of securities falls more than twenty percent, all in the matter of weeks.
The Panic of 1792 is further instigated by the sudden restriction of previously overextended credit by the Bank of the United States.
When the Bank of the United States first began accepting deposits and making discounts in December 1791, it had expanded credit extensively.
By January 31, 1792 monetary liabilities exceeded $2.17 million, and discounts reached $2.68 million —a very large sum at this time.
Speculators have taken advantage of this new credit source, using it to make withdrawals from the Bank of New York, which has placed undue stress on the bank’s reserves.
From December 29 to March 9, cash reserves for the Bank of the United States had decreased by thirty-four percent, prompting the bank to not renew nearly twenty-five percent of its outstanding thirty-day loans.
In order to pay off these loans, many borrowers are forced to sell securities that they had purchased, which causes prices to fall sharply.
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