Panic of 1866

The Panic of 1866 was a major financial crisis in the United Kingdom that accompanied the failure of Overend, Gurney and Company, a leading wholesale discount bank based in the City of London.

Only one in six of the joint-stock banks formed since 1844 survived this crisis. The Companies Act 1862 had created a financial boom which laid the groundwork for the larger banks of British finance during the latter half of the 19th century. The Panic decimated shipbuilding in London, and the Millwall Iron Works holding company collapsed.

Impact on foreign trade

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. Historian David Kynaston notes the shift in the discount bills in the 1860s, particularly to finance supplies for the American Civil War, and Richard Roberts describes the 1860s, 1870s and 1880s as the "internationalisation of the discount market".

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."

Bank of England

The Panic of 1866 was a key event in banking history. 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.