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

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  • Flandreau, Marc
  • Ugolini, Stefano

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8362.

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Date of creation: Apr 2011
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Handle: RePEc:cpr:ceprdp:8362

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

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References

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  1. Clemens Jobst & Marc Flandreau, 2005. "The Ties that Divide: A Network Analysis of the International Monetary System, 1890-1910," Sciences Po publications n°5129, Sciences Po.
  2. Flandreau, Marc, 2004. "The Glitter of Gold: France, Bimetallism, and the Emergence of the International Gold Standard, 1848-1873," OUP Catalogue, Oxford University Press, number 9780199257867, September.
  3. Barry Eichengreen, Marc Flandreau, 2010. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914-1939," IHEID Working Papers 16-2010, Economics Section, The Graduate Institute of International Studies.
  4. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, December.
  5. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide. A Network Analysis of the International Monetary System," CEPR Discussion Papers 5129, C.E.P.R. Discussion Papers.
  6. repec:spo:wpecon:info:hdl:2441/605 is not listed on IDEAS
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Citations

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Cited by:
  1. Giovanni Federico, 2011. "A Tale of Two Oceans: Market Integration Over the High Seas, 1800-1940," Working Papers 0011, European Historical Economics Society (EHES).
  2. Prados de la Escosura, Leandro, 2013. "Human development in Africa: A long-run perspective," Explorations in Economic History, Elsevier, vol. 50(2), pages 179-204.
  3. Galo Nuño & Pedro Tedde & Alessio Moro, 2011. "Money dynamics with multiple banks of issue: evidence from Spain 1856-1874," Banco de Espa�a Working Papers 1119, Banco de Espa�a.
  4. Gary B. Gorton, 2012. "Some Reflections on the Recent Financial Crisis," NBER Working Papers 18397, National Bureau of Economic Research, Inc.
  5. Stephen Quinn & William Roberds, 2012. "Responding to a shadow banking crisis: the lessons of 1763," Working Paper 2012-08, Federal Reserve Bank of Atlanta.
  6. Marc Flandreau & Stefano Ugolini, 2014. "The Crisis of 1866," IHEID Working Papers 10-2014, Economics Section, The Graduate Institute of International Studies.
  7. Pierre-Cyrille Hautcoeur & Angelo Riva & Eugene N. White, 2014. "Floating a "Lifeboat": The Banque de France and the Crisis of 1889," NBER Working Papers 20083, National Bureau of Economic Research, Inc.
  8. Rodríguez Braun, Carlos, 2014. "La banca y las crisis financieras en la literatura popular: Una fortuna peligrosa, de Ken Follett /Banking and Financial Crises in Popular Literature: A Dangerous Fortune, by Ken Follett," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 32, pages 201-222, Enero.
  9. Klovland, Jan Tore & Øksendal, Lars Fredrik, 2013. "The decentralised central bank: regional bank rate autonomy in Norway, 1850-1892," Discussion Paper Series in Economics 6/2013, Department of Economics, Norwegian School of Economics.
  10. Marc Flandreau & Gabriel Geisler Mesevage, 2014. "The Separation of Information and Lending and the Rise of Rating Agencies in the United States," IHEID Working Papers 11-2014, Economics Section, The Graduate Institute of International Studies.

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