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Country banks and the Panic of 1825

Author

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  • Olmstead Rumsey, Jane
  • Ravalli, Giorgio

Abstract

The Panic of 1825 was a significant crisis in British financial history. We document how this crisis spread from London banks to England’s real economy. England’s correspondent banking network propagated trouble in sovereign debt markets to small banks outside of London and ultimately to non-financial firms. Using exogenous variation in district-level exposure to the crisis, we show that bank failures led to a substantial number of bankruptcies among non-financial firms. We discuss two potential mechanisms by which the financial system affected the real economy: a fall in aggregate demand and a credit supply shock.

Suggested Citation

  • Olmstead Rumsey, Jane & Ravalli, Giorgio, 2026. "Country banks and the Panic of 1825," LSE Research Online Documents on Economics 140167, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:140167
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    File URL: https://researchonline.lse.ac.uk/id/eprint/140167/
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    References listed on IDEAS

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    1. Olmstead Rumsey, Jane & Ravalli, Giorgio, 2026. "Country banks and the Panic of 1825," LSE Research Online Documents on Economics 140167, London School of Economics and Political Science, LSE Library.

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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