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

Marc Flandreau and Stefano Ugolini

No 8362, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Bagehot; Central banking; Lending of last resort; Shadow banking system (search for similar items in EconPapers)
JEL-codes: G01 G15 N13 (search for similar items in EconPapers)
Date: 2011-04
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Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Where it all began: lending of last resort and the Bank of England during the Overend-Gurney panic of 1866 (2011)
Working Paper: Where It All Began: Lending of Last Resort and the Bank of England during the Overend, Gurney Panic of 1866 (2011)
Working Paper: Where It All Began: Lending of Last Resort and the Bank of England During the Overend, Gurney Panic of 1866 (2011)
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