Where it All Began: Lending of Last Resort and the Bank of England During the Overend, Gurney Panic of 1866

49 Pages Posted: 4 May 2011

See all articles by Marc Flandreau

Marc Flandreau

Centre for Economic Policy Research (CEPR)

Stefano Ugolini

University of Toulouse 1 - Laboratoire d'Etudes et de Recherches sur l'Économie, les Politiques et les Systèmes Sociaux (LEREPS)

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Date Written: April 2011

Abstract

In this article, we use the original ledgers of the Bank of England to document which institutions received liquidity during the crisis of 1866. The so-called Overend-Gurney panic is when the Bank began adopting lending of last resort policies (Bignon, Flandreau and Ugolini 2011). We compare 1865 (a 'normal' year) to 1866. Important findings include: (a) the statistical predominance of foreign bills in the material brought to the Bank of England; (b) the correlation between the geography of bills and British trade patterns; (c) a marked contrast between normal times lending and crisis lending in that main financial intermediaries and the 'shadow banking system' only showed up at the Bank's window during crises; (d) the importance of money market investors (bills brokers) as chief conduit of liquidity provision in crisis; (e) the importance of Bank of England's supervisory policies in ensuring lending-of-last-resort operations without enhancing moral hazard. These features call for important and interesting parallels with recent policies adopted by the Federal Reserve to deal with the sub-prime crisis.

Keywords: Bagehot, Central Banking, Lending of Last Resort, Shadow Banking System

JEL Classification: G01, G15, N13

Suggested Citation

Flandreau, Marc and Ugolini, Stefano, Where it All Began: Lending of Last Resort and the Bank of England During the Overend, Gurney Panic of 1866 (April 2011). Available at SSRN: https://ssrn.com/abstract=1830980

Marc Flandreau (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Stefano Ugolini

University of Toulouse 1 - Laboratoire d'Etudes et de Recherches sur l'Économie, les Politiques et les Systèmes Sociaux (LEREPS) ( email )

21, Allée de Brienne
Toulouse, 31042
France

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