The Crisis in the Money Market

South Canterbury Times, Issue 6384, 27 November 1890, Page 2

The Crisis in the Money Market

It has been stated in our cable messages, that the tension in the money' market bad not been so severe since “ Black Friday,” the 11th of May, 1866. From a standard book on banking, we give the following statement respecting what took place at that date, when the gre«t bouse of Overend, Gurney, and Co* stopped payment: In November, 1865, a strong foreign drain began, the exchange fell, and this growing stronger, in January, 1866, the Bank raised its rate on the 6ih to 8 This had some effect in arresting the drain, but it did not bring in fresh supplies from abroad. The high rate of interest caused a good deal of foreign money to be invested in long-dated bills Towards the end of Jonuary the difficulties began which brought on the panic in May. Finance and discount companies had advanced enormous sums of money to promote great enterprises, such as railways and other schemes, which could never repay their cost until they were completed, which might take years to do. The; first company that went was the Joint Stock Discount Company, in February. This spread a general feeling of alarm, as the doings of this company were merely a type of a large amount of business which was known to have been engaged in by numerous other companies. In March, Burned’s Bank at Liverpool stopped payment, with liabilities of upwarde of three and a-half millions. Several great railway contractors suspended, involving in discredit the companies with whom they' were known to have “ financed.”

On the 3rd of May the Bank raised its discount to 7 percent. Everyone now felt* 1 that the Tong-dreaded crisis was' at' last' come. On the Bth of May the Bank raised its discount to 8 per cent., and on the 9th of May to 9 per cent. On this day, however, occurred the event which, it is probable, produced the great panic. The MidWales Railway Company had accepted bills of exchange to the amount of £60,000, which were held by three parties —Bateman, Overend, Gurney, and Company, and (be National Discount Company. The company bad dishonoured the bills, and. actions had been brought against them by the three parties above named. As ill-fortune would have it. judgmentin these actions were delivered on Hi? 9th of May, in the very height of the excitement. The Court of Common Pleas held 1 unanimously that the railway company had no authority whatever to accept such bills, and consequently that they were absolutely invalid, and so much waste paper. For some time back it was known that Overend, Gurney and Co. were very deep in with the contractors and others parties; moreover they held forged bills to a large amount of another firm Their shares had been pressed oh the market, and wore going down. This fall in their shores produced a steady withdrawal of their deposits. The judgmentin the case of the Mid-Wales Railway converted this into a complete run • and on the afternoon of Thursday, May 10, the terrible nows spread through London that , the great establishment of Ovorend, Gurney, and Co. bad stopped payment, with liabilities exceeding £lo,ooo,ooo—the most stupendous failure that ever took place in the city. The cows only spread about after banking hours j but everyone could foresee what the effects would be next morning. The

I Chancellor of the Exchequer said next evening in the House that the oldest inhabitants of the city declared that the excitement was without a parallel. Early in the evening he was questioned as to whether the Government had authorised the Bank to issue notes in excess of the legal limit. The Chancellor replied that he had not yet done so, but that ho had received a deputation from the private bankers, and was expecting one from the Joint Stock Banks on the subject. Very soon afterwards (his came, and the members of the Cabinet, having retired to a committeeroom and consulted, the Chancellor later in the evening announced, amidst the loudest cheering from all parts of the House, that the Government, following the precedents of 1847 and 1857, had informed the bank that if they thought proper to make advances beyond the limit the government would bring in a Bill of ndemnity. He also stated that the Bank had advanced £4 000,000 that day. The announcement of the suspension of the Bank Charter Act produced the best effects next morning. The Bank raised its rate to 10, per cent., and. everything was calmed down, and though subsequently to this some other stoppages took place, yet the knowledge that the Bank had power to make advances on good securities abated the panic. On the 18th of May the Chancellor of the Exchequer stated that the Bank had advanced in five days. The sum that was paid away during the panic can probably never been known, but it was something per- ’

feotly fabulous. It has been said, though of course we know not on what authority, that one great bank alone paid away £3,000,000 in six hoars.