From the BoE's Bank Underground blog:
Dec. 19, 2016
Today we begin a 3-part series of posts telling the story of a period of financial boom and bust in British economic history, when crises hit with almost clockwork regularity: 1847, 1857 and 1866. We delved deep into the Bank’s archives to reveal letters exchanged between Governors and Chancellors of the Exchequer temporarily suspending the law, read the diary entries of the people at the heart of the turmoil, and perused the Bank’s ledgers of the time to bring the crises to life....MORE
Together these three episodes were crucial in shaping the evolution of the Bank’s role into what we now think of as a central bank; the lessons learned during this time resulted in half a century of financial stability and are as relevant now as they were then.
Back then, the Bank was private bank with its own shareholders but it had to operate under the 1844 Bank Charter Act and the Gold Standard. A practical consequence of this arrangement was that any new currency issued by the Bank had to be backed by gold.
In each crisis, the Bank’s cash reserves dipped so low that there was a risk it could not honour its liabilities to the rest of the financial system. Each time the government was asked to grant an indemnity to the Bank to allow the issue of unbacked currency, in order to allow the Bank to expand its balance sheet, provide liquidity and stabilise the financial system....
HT for the above and for the heads up on the series: FT Alphaville's Further Reading post, Dec. 20, 2016.
The series:
Dec. 19
The ghost of crises past, present and future: The Bank Charter Act goes on trial in 1847
Dec. 20
The Nightmare before Christmas: Financial crises go global in 1857
Dec. 21
Unto us a lender of last resort is born: Overend Gurney goes bust in 1866
Dec. 21
The Bank Underground Christmas Quiz
That failure of Overend Gurney was rather a big deal, it was in all the papers.
From our August 2016 post "Overend, Gurney & Co.: An Inspiration to Karl Marx and Bear Stearns":
One of the most dramatic events in the financial history of Victorian England was the collapse of Overend, Gurney and Co. Its failure had a more severe impact on the London financial market than the collapse of Bear Stearns had on U.S. markets over 140 years later. During the financial crisis of 1866, over 200 firms went bankrupt, including a number of banks. The failure of Overend, Gurney and Co. also led to one of the first trials for financial fraud in history when all six directors were brought before the courts of London to answer for their alleged crimes....
