Panic of 1866

Short description: International financial downturn

Cartoon from Fun magazine, 1866. The caption reads 'The Old Lady of Threadneedle Street — "Now, my young friends, let this be a warning to you against rash speculation. What would you have done but for my little savings?"'

The Panic of 1866 was an international financial downturn that accompanied the failure of Overend, Gurney and Company in London, and the corso forzoso abandonment of the silver standard in Italy.

In United Kingdom , the economic impacts are held partially responsible for public agitation for political reform in the months leading up to the 1867 Reform Act. The crisis led to a sharp rise in unemployment to 8% and a subsequent fall in wages across the country. Similar to the "knife and fork" motives of Chartism in the late 1830s and 1840s, the financial pressure on the British working class led to rising support for greater representation of the people. Groups such as the Reform League saw rapid increases in membership and the organisation spearheaded multiple demonstrations against the political establishment such as the Hyde Park riot of 1866. Ultimately the popular pressure that arose from the banking crisis and the recession that followed can be held partly responsible for the enfranchisement of 1.1 million people as a result of Disraeli's reform bill.[1]

The Panic decimated shipbuilding in London, and the Millwall Iron Works holding company collapsed. Less than 17% of the joint-stock banks formed since 1844 weathered this tumult.[2] The Companies Act 1862 created a financial boom which laid the groundwork for the larger banks of British finance during the latter half of the 19th century.[3]

The primary importance of the expansion of credit was its role in foreign trade. Historians P. J. Cain and A. G. Hopkins note that "gentlemanly capitalism" (a class-conscious form of white-collar work in finance, insurance, shipping and the Empire) was the key to the growth of the Empire and its economic growth beginning in 1850.[4] Historian David Kynaston notes the shift in the discount bills in the 1860s, particularly to finance supplies for the American Civil War,[5] and Richard Roberts describes the 1860s, 1870s and 1880s as the "internationalisation of the discount market".[6]

According to a 2022 study, "countries exposed to bank failures in London immediately exported significantly less and did not recover their lost growth relative to unexposed places. Their market shares within each destination also remained significantly lower for four decades."[7]

## Contents

* 1 Bank of England
* 2 See also
* 3 Further reading
* 4 References

## Bank of England

The Panic of 1866 provides the key event recognising this shift. In the 12 May 1866 issue of The Economist, Walter Bagehot noted that the Bank of England's refusal to lend with Consol bonds as collateral was troubling. The following week he also wrote that this refusal had caused further panic, as well as that the bankers did not consider the Bank of England to be a government agency.

By issuing its letter suspending the Bank Charter Act 1844,[8] however, it revealed its backing by the Government and was "confirming the popular conviction that the Government is behind the Bank, and will help it when wanted".[9]

On 12 May 1866, Bagehot wrote that the panic now meant "a state in which there is confidence in the Bank of England and in nothing but the Bank of England",[10] highlighting the conflict between the Bank's role in maintaining the liquidity of the domestic market and in maintaining its reserves to guarantee convertibility for foreign currency exchange.[11] In a panic, not only did the need to maintain reserves mandated by the Bank Charter Act 1844 lead to hesitation by the Bank, but also the suspension of its requirements confused foreign investors, who believed the Bank had suspended payments, which led to concurrent massive foreign withdrawals.[12]

The Bank of England adopted Bagehot's solution, which was an explicit policy of free offers to lend at high discount rates. This policy rebuilt the Bank's reserves.[13] It also moderated and refined its use of monetary policy to influence capital flows in and out of the United Kingdom.[14][15]

The Bank of England's response to the 1866 financial crisis helped make the sterling pound an international currency.[16]

## See also

* List of banking crises

## Further reading

* Baxter, Robert. The Panic of 1866; with its Lessons on the Currency Act. London, Longmans, Green (1866); New York: B. Franklin (1969).
* Elliott, Geoffrey. The Mystery of Overend and Gurney: Adventures in the Victorian Financial Underworld. London, Methuen (2006).
* Kindleberger, Charles P. Historical Economics: Art or Science? University of California Press, 1990, p. 310\. [1]
* Kynaston, David (2017). Till Time's Last Sand: A History of the Bank of England, 1694–2013. New York: Bloomsbury. p. 202. ISBN 978-1408868560.
* Scott, Benjamin. A Statistical Vindication of the City of London; or, Fallacies Exploded and Figures Explained. London, Longmans, Green (1867); 3rd edition, 1877.
* Read, Charles (2022). Calming the storms : the carry trade, the banking school and British financial crises since 1825. Cham, Switzerland. ISBN 978-3-031-11914-9. OCLC 1360456914.

## References

1. ↑ Malcolm Pearce and Geoffrey Stewart, British Political History 1867–1990, published 1992
2. ↑ George Robb, White-Collar Crime in Modern England: Financial Fraud and Business Morality, 1845–1929 (Cambridge: Cambridge Univ. Press, 1992), p. 71.
3. ↑ Joshua Gooch, "On Black Friday, 11 May 1866", in BRANCH: Britain, Representation and Nineteenth-Century History, ed. Dino Franco Felluga. Downloaded 23 Feb. 2016, p. 4.
4. ↑ P. J. Cain and A. G. Hopkins, British Imperialism: Innovation and Expansion, 1688-1890 (New York: Longman, 1993), p. 170.
5. ↑ David Kynaston, The City of London, A World of Its Own, 1815–1890 (London: Chatto, 1994), p. 225.
6. ↑ Richard Roberts, "The Bank of England and the City", in The Bank of England: Money, Power and Influence, 1694–1994 (Oxford: Clarendon Press, 1995), p. 159.
7. ↑ Xu, Chenzi (2022). "Reshaping Global Trade: the Immediate and Long-Run Effects of Bank Failures". Quarterly Journal of Economics 137 (4): 2107–2161. doi:10.1093/qje/qjac016.
8. ↑ Suspension of the Bank Charter Act 1844 meant suspending the ratio of note issue in excess of 14 million pounds to gold, an action that typically had more effect on the perception of credit than on note availability.
9. ↑ W. T. C. King, History of the London Discount Market (london: Frank Cass, 1935), p. 29.
10. ↑ Walter Bagehot, "What a Panic Is and How It Might Be Mitigated". The Economist, vol. 24, No 1185 (12 May 1866), p.554.
11. ↑ Gooch, op. cit., p. 5.
12. ↑ Walter Bagehot, Lombard Street (London: Morgan, 1873), p. 25.
13. ↑ Gooch, op. cit., p. 5.
14. ↑ Read, Charles (2022). Calming the storms : the carry trade, the banking school and British financial crises since 1825. Cham, Switzerland. pp. 204-206, 235-238. ISBN 978-3-031-11914-9. OCLC 1360456914. https://www.worldcat.org/oclc/1360456914.
15. ↑ Bonamy Price. (1878) Chapters on Practical Political Economy. Kegan Paul. pp. 491-492.
16. ↑ Flandreau, Marc; Ugolini, Stefano (2014), "The Crisis of 1866", British Financial Crises since 1825 (Oxford: Oxford University Press), doi:10.1093/acprof:oso/9780199688661.003.0005, ISBN 978-0-19-968866-1, https://oxford.universitypressscholarship.com/10.1093/acprof:oso/9780199688661.001.0001/acprof-9780199688661-chapter-5

* v
* t
* e

Financial crises

* Banking panic
* Bear market
* Credit crunch
* Credit cycle
* Currency crisis
* Debt crisis
* Energy crisis
* Flash crash
* Hyperinflation
* Liquidity crisis
* Minsky moment
* Stock market crash

Pre–1000|

* Crisis of the Third Century (CE 235–284)

1000–1760|

* Great Bullion Famine (c. 1400–c. 1500)
* The Great Debasement (1544–1551)
* Kipper und Wipper (1621–1623)
* Tulip mania crash (1637)
* South Sea bubble crash (1720)
* Mississippi bubble crash (1720–1721)

1760–1840|

* Amsterdam banking crisis of 1763
* Bengal bubble crash (1769–1784)
* Crisis of 1772
* Dutch Republic financial collapse (c. 1780–1795)
* Panic of 1785
* Copper Panic of 1789
* Panic of 1792
* Panic of 1796–97
* Danish state bankruptcy of 1813
* Panic of 1819
* Panic of 1825
* Panic of 1837

1840–1870|

* Panic of 1847
* Panic of 1857
* Panic of 1866
* Black Friday (1869)

1870–1914|

* Panic of 1873
* Paris Bourse crash of 1882
* Panic of 1884
* Arendal crash (1886)
* Baring crisis (1890)
* Encilhamento (1890–1893)
* Panic of 1893
* Australian banking crisis of 1893
* Black Monday (1894)
* Panic of 1896
* Panic of 1901
* Panic of 1907
* Shanghai rubber stock market crisis (1910)
* Panic of 1910–11

1918–1939|

* Early Soviet hyperinflation (1917–1924)
* Weimar Republic hyperinflation (1921–1923)
* Shōwa financial crisis (1927)
* Wall Street Crash of 1929
* Panic of 1930

1945–1973|

* Kennedy Slide of 1962

1973–1982|

* 1970s energy crisis (1973–1980)
* 1973 oil crisis
* 1973–74 stock market crash
* Secondary banking crisis of 1973–1975
* Latin American debt crisis (1975–1982)
* 1976 IMF crisis
* 1979 oil crisis
* Brazilian hyperinflation (1980–1982)

1982–2007|

* Brazilian hyperinflation (1982–1994)
* Souk Al-Manakh stock market crash (1982)
* Chilean crisis of 1982
* 1983 Israel bank stock crisis
* Black Saturday (1983)
* Savings and loan crisis (1986–1995)
* Black Monday (1987)
* 1988–1992 Norwegian banking crisis
* Friday the 13th mini-crash (1989)
* Japanese asset price bubble crash (1990–1992)
* 1990 oil price shock
* Rhode Island banking crisis (1990–1992)
* 1991 Indian economic crisis
* 1990s Swedish banking crisis (1991–1992)
* 1990s Finnish banking crisis (1991–1993)
* 1990s Armenian energy crisis (1991–1995)
* Cuban Special Period (1991–2000)
* Black Wednesday (1992)
* 1992 Colombian energy crisis
* 1994 bond market crisis
* Venezuelan banking crisis of 1994
* Mexican peso crisis (1994)
* 1997 Asian financial crisis
* October 27, 1997 mini-crash
* 1998 Russian financial crisis
* 1998–99 Ecuador financial crisis
* Samba effect (1999)
* California electricity crisis (2000–01)
* Dot-com bubble crash (2000–2004)
* 2001 Turkish economic crisis
* 9/11 stock market crash (2001)
* Stock market downturn of 2002
* South American economic crisis of 2002
* 2002 Uruguay banking crisis
* 2003 Myanmar banking crisis
* 2000s energy crisis (2003–2008)
* 2004 Argentine energy crisis
* Nigerian energy supply crisis (2005–)
* 2007 Chinese stock bubble crash
* Zimbabwean hyperinflation (2007–)

2007–08|

* U.S. housing market correction (2006–07)
* 2008 Bulgarian energy crisis
* 2008 Central Asia energy crisis
* 2008 Latvian financial crisis
* 2008–09 Belgian financial crisis
* 2008–09 Russian financial crisis
* 2008–09 Ukrainian financial crisis
* 2008–2011 Icelandic financial crisis
* 2008–2011 Irish banking crisis
* 2008–2014 Spanish financial crisis
* European debt crisis
* Greek government-debt crisis
* Subprime mortgage crisis
* U.S. bear market of 2007–2009

Post–2008|

* 2009 Ecuador electricity crisis
* 2009 Dubai debt standstill
* Venezuelan banking crisis of 2009–10
* 2010 Flash Crash
* 2010–2014 Portuguese financial crisis
* Energy crisis in Venezuela (2010–)
* 2011 Tōhoku earthquake and tsunami stock market crash
* August 2011 stock markets fall
* 2011 Bangladesh share market scam
* 2012–13 Cypriot financial crisis
* 2013 Chinese banking liquidity crisis
* Venezuela economic crisis (2013–)
* Gaza electricity crisis (2013–)
* 2014–2016 Brazilian economic crisis
* Puerto Rican government-debt crisis (2014–)
* 2014–2017 Russian financial crisis
* 2015–16 Chinese stock market turbulence
* 2015–16 stock market selloff
* Zulia energy collapse (2015–)
* Brexit stock market crash (2016)
* 2016 Southeastern U.S. gas shortage
* Venezuelan hyperinflation (2016–)
* 2017 Sri Lankan fuel crisis
* Ghana banking crisis (2017–18)
* 2018 cryptocurrency crash
* 2018 Turkish currency and debt crisis

* List of banking crises
* List of economic crises
* List of sovereign debt crises
* List of stock market crashes and bear markets

0.00

(0 votes)

|

Retrieved from "https://handwiki.org/wiki/index.php?title=Finance:Panic_of_1866&oldid=4200418"
*[v]: View this template
*[t]: Discuss this template
*[e]: Edit this template