Financial Contagion 1855: How the Crimean War Felled San Francisco’s Largest Banks Available to Purchase

This essay analyzes the 1855 failures of the largest banks in Gold Rush San Francisco, arguing that the antecedents of those failures—excessive leverage, interlocking ownership, inadequate segregation of assets, and concentration of risk in non-banking enterprises—were independent of the monetary and economic regime in place at the time. Those antecedents exposed Gold Rush bankers to external risks originating in events in which they had no involvement, and over which they had no control. The specific case of Page, Bacon & Co. also shows how bankers tied Gold Rush California into the broad forces, especially changing patterns of trade in grain, driving shifts in the global economy. Their gold business gave them access to capital markets in London and New York to finance a major railroad project, the Ohio & Mississippi Railroad, which stood to benefit from the grain trade. The bank collapsed when the Crimean War closed off its access to European capital markets, straining the bank’s resources to breaking. California’s hard-money economy and restrictive banking laws could not insulate bankers from global events, and in fact contributed to the chaotic nature of their failures’ aftermath.