The Bank of England as Lender of Last Resort: New historical evidence from daily transactional data

Mike Anson, David Bholat, Miao Kang and Ryland Thomas

No 117, Working Papers from European Historical Economics Society (EHES)

Abstract: We use daily transactional ledger data from the Bank of EnglandÕs Archive to test whether and to what extent the Bank of England during the mid-nineteenth century adhered to Walter BagehotÕs rule that a central bank in a financial crisis should lend cash freely at a high interest rate in exchange for ÔgoodÕ securities. The archival data we use provides granular, loan-level insight on the price and quantity of credit, and information on its distribution to particular counterparties. We find that the BankÕs behaviour during this period broadly conforms to BagehotÕs rule, though with variation across the crises of 1847, 1857 and 1866. Using a new, higher frequency series on the BankÕs balance sheet, we find that the Bank did lend freely, with the number of discounts and advances increasing during crises. These loans were typically granted at a rate above pre-crisis levels and, in 1857 and 1866, typically at a spread above Bank Rate, though we also find some instances in the daily discount ledgers where individual loans were made below Bank rate in 1847. Another set of customer ledgers shows that the securities the Bank purchased were debts owed by a geographically and industrially diverse set of debtors. And using new data on the BankÕs income and dividends, we find the Bank and its shareholders profited from lender of last resort operations. We conclude our paper by relating our findings to contemporary debates including those regarding the provision of emergency liquidity to shadow banks.

Keywords: Bank of England; lender of last resort; financial crises; financial history; central banking (search for similar items in EconPapers)
JEL-codes: E58 G01 G18 G20 H12 N2 N4 N8 (search for similar items in EconPapers)
Pages: 82 pages
Date: 2017-11
New Economics Papers: this item is included in nep-ban, nep-his, nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Working Paper: The Bank of England as lender of last resort: new historical evidence from daily transactional data (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hes:wpaper:0117

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