Where it all began: lending of last resort and the Bank of England during the Overend-Gurney panic of 1866
The National Monetary Commission was deeply concerned with importing best practice. One important focus was the connection between the money market and international trade. It was said that Britain’s lead in the market for “acceptances” originating in international trade was the basis of its sterling predominance. In this article, we use a so-far unexplored source to document the portfolio of bills that was brought up to the Bank of England for discount and study the behavior of the Bank of England during the crisis of 1866 (the so-called Overend-Gurney panic) 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. An implication of our findings is that Bank of England’s ability to control moral hazard for financial intermediaries involved in acceptances was another reason for the rise of sterling as an international currency.
|Date of creation:||29 Mar 2011|
|Contact details of provider:|| Postal: Postboks 1179 Sentrum, 0107 Oslo|
Phone: +47 22 31 60 00
Fax: +47 22 41 31 05
Web page: http://www.norges-bank.no/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Flandreau, Marc & Jobst, Clemens, 2005.
"The Ties that Divide: A Network Analysis of the International Monetary System, 1890 1910,"
The Journal of Economic History,
Cambridge University Press, vol. 65(04), pages 977-1007, December.
- Marc Flandreau & Clemens Jobst, 2005. "The Ties that Divide: A Network Analysis of the International Monetary System, 1890-1910," Working Papers hal-01065599, HAL.
- Marc Flandreau & Clemens Jobst, 2005. "The Ties that Divide: A Network Analysis of the International Monetary System, 1890-1910," Sciences Po publications n°5129, Sciences Po.
- Giuseppe Tullio & Jürgen Wolters, 2007. "Monetary Policy in Austria–Hungary, 1876–1913: An Econometric Analysis of the Determinants of the Central Bank’s Discount Rate and the Liquidity Ratio," Open Economies Review, Springer, vol. 18(5), pages 521-537, November.
- Tullio, Guiseppe & Wolters, Jürgen, 2004. "Monetary policy in Austria-Hungary, 1876 - 1913: An econometric analysis of the determinants of the Central Bank's discount rate and the liquidity ratio," Discussion Papers 2004/24, Free University Berlin, School of Business & Economics.
- Tetsuji Okazaki, 2006. "Micro-aspects of Monetary Policy in Pre-war Japan: Lender of Last Resort and Selection of Banks," CIRJE F-Series CIRJE-F-398, CIRJE, Faculty of Economics, University of Tokyo.
- Gary B. Gorton, 2010. "Questions and Answers about the Financial Crisis," NBER Working Papers 15787, National Bureau of Economic Research, Inc.
- Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, July.
- Stefano Ugolini, 2011. "An ‘Atypical’ Case? The First Emergence of Brussels as an International Financial Centre, 1830-1860," Post-Print hal-01294365, HAL.
- repec:spo:wpecon:info:hdl:2441/605 is not listed on IDEAS
- Okazaki, Tetsuji, 2007. "Micro-aspects of monetary policy: Lender of Last Resort and selection of banks in pre-war Japan," Explorations in Economic History, Elsevier, vol. 44(4), pages 657-679, October.
- Bagehot,Walter, 2011. "Lombard Street," Cambridge Books, Cambridge University Press, number 9781108035811, September.
- 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.
- Barry Eichengreen & Marc Flandreau, 2012. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914–1939," Open Economies Review, Springer, vol. 23(1), pages 57-87, February.
- 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.
- 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. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bno:worpap:2011_03. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.