National Bank Crisis
The KSS failure, although unique in some ways, was part of a national bank crisis known as the Panic of 1837 that began in May of that year. Underlying causes of the nationwide financial panic included speculative and inflationary selling of public lands in western states like Michigan, Ohio and Missouri. The economic policies of the previous President Andrew Jackson, including the Specie Circular and the withdrawal of government funds from the Second Bank of the United States, also contributed to the crisis.
On May 10, 1837 in New York, every chartered bank stopped payment in specie (gold and silver coinage), leaving banks and local institutions like the KSS holding notes without adequate liquid assets. Within two months the failures in New York alone aggregated nearly $100,000,000 in value. "Out of eight hundred and fifty banks in the United States, three hundred and forty-three closed entirely, sixty-two failed partially, and the system of State banks received a shock from which it never fully recovered." Smaller, privately held financial institutions, like the KSS, also failed in droves. The Panic was followed by a five-year depression, characterized by ongoing failures of banks and financial institutions and record unemployment levels.
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