Mid-Victorian global economics evolved under the ever-increasing arch of the British Empire. The City of London was the Empire’s engine-room, fuelled by expanding colonial trade; but by the 1860s entrepreneurial confidence was replaced by opportunistic greed. Tennyson, Trollope and Dickens were among the great literary figures who fulminated against what Thomas Carlyle denounced as ‘Cheap and Nasty’ – a phenomenon of commercial immorality as much as of Shoddy manufacture.
Corruption flourished in a speculative boom, effectively financed by a discount banking house whose indirect importance to retail banking made it second only to the Bank of England itself: Overend, Gurney and Company was the most powerful privately owned financial institution in Britain. Supreme wealth wasn’t enough. The Company wanted more – but its willingness to waive collateral on increasingly risky speculations backfired in a catastrophic spate of scandal, fraud and multiple bankruptcies among its clients.
The collapse of Overend, Gurney and Company in 1866 signaled the most notorious bank run in British history. On May 10, the company suspended cash payments and the Bank of England declined its support, sparking a run-on all the banks until by midday Tumult became a rout’ with ‘throngs heaving and tumbling about Lombard Street’.
Though Gladstone (then Chancellor of the Exchequer) suspended the Bank Charter Act to stop the rot, the consequences steamrollered on. Ten banks and over 180 major companies failed; and the damage to colonial economies and Britain’s trade could barely be imagined, let alone calculated. Whole sectors, like the Lancashire cotton industry, never fully recovered.
Overend, Gurney’s failure (to the tune of £11 million) instilled a conservatism in banking that enabled Britain’s economy – alone in Europe – to survive the hammering of the interwar years. It’s taken 140 years for those lessons to be forgotten … and for history to repeat itself.
When: May 1866
Where: London, UK
Toll: Whole communities that depended on a single industry for at least partial employment suffered prolonged hardship.
You should know: Overend, Gurney and Company was once nicknamed ‘the bankers’ banker’ because of its probity. Only when it began lending direct to ‘finance companies’ involved in unsecured mortgages did its troubles begin. Curiously, in 2007 Northern Rock collapsed for the same reason – and the run on Northern Rock was the first on a British bank since Overend, Gurney and Company in 1866.