|Box 1: 1866 and all that
The most notorious bank run in British history took place in May 1866 at the time of the collapse of Overend, Gurney & Co. The early 1860s saw a speculative boom, fuelled in part by the banking sector reducing its liquidity ratios. Overend, Gurney & Co. was not a retail bank, but a discount house whose deposits largely came from other banks. In the early 1860s, the company expanded from its core business in well-secured Bills of exchange into riskier investments, such as shipyards and shipping lines, with inadequate collateral. Walter Bagehot observed that the company made losses "in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better". Towards the end of 1865 and in early 1866, there was a severe tightening of monetary policy and several businesses to which the company had lent collapsed. An attempt by the company to stave off bankruptcy by converting from a private partnership to a limited liability company failed to attract sufficient new capital. The share price fell rapidly, encouraging depositors to withdraw funds. On 9 May 1866, after an inspection of the company's books suggesting that it was close to bankruptcy, the Bank of England declined to give support.
The following day, Overend, Gurney & Co. suspended cash payments, sparking "terror and anxiety" so that "a run commenced upon all the banks, the magnitude of which can hardly be conceived". About midday on 10 May, "the tumult became a rout. The doors of the most respectable Banking Houses were besieged
and throngs heaving and tumbling about Lombard Street made the narrow thoroughfare impassable." The Bank of England lent £4 million on that day, and secured the support of William Gladstone, the Chancellor of the Exchequer, for suspension of the Bank Charter Act to enable it to lend more in the days that followed. The run was brought to a conclusion, but, during the three weeks following Overend's demise, as many as ten banks suspended cash payments, and Walter Bagehot criticised the Bank of England for lending "hesitatingly, reluctantly and with misgiving".
Scottish banks had been largely unaffected by the crisis of 1866, but were central to the events of 1878. A severe monetary tightening in the second half of that year contributed to the collapse of the City of Glasgow Bank, which had in any case been engaged in fraudulent activities. Other Scottish banks underwrote its outstanding note issue, but not its deposit balances, and the closing months of 1878 saw a run on a number of British banks. Several banks failed, although the banking sector as a whole responded by strengthening liquidity ratios, and legislation was passed in 1879 which provided for compulsory, independent audit of banks.
The events of late 1878 were described in 2003 as "the last time there was to be a general run on commercial bank deposits in England", and it was a modest run indeed compared to that which followed the collapse of Overend, Gurney & Co. There have been subsequent bank failures, but none caused a run. In 1890, Barings suffered a crisis of liquidity; the Bank of England decided that Barings was still solvent, and agreed to advance liquidity having secured agreement from other banks that they would share any losses. On 5 July 1991, the Bank of Credit and Commerce International (BCCI) was closed, causing substantial losses for many depositors, including local authorities, but this did not cause a run or any systemic problems. On 26 February 1995, Barings became insolvent as a result of "unauthorised dealings" by its chief trader in Singapore, but its closure did not have wider adverse effects for the banking system.