The 1866 financial panic began after the failure of the British bank Overend, Gurney and Company.
Overend, Gurney and Company had become one of London’s largest discount houses, lending against bills of exchange. Its business expanded during a period of rapid railway investment and speculative finance, but losses increased when borrowers failed and asset values weakened.
The firm suspended payments on May 10, 1866. The news caused a run on banks and financial institutions in London, sharply disrupted credit, and contributed to a major fall in share prices. The Bank of England responded by using its lender-of-last-resort powers and lending under a temporarily relaxed legal limit.
The Panic of 1866 spread beyond Britain through financial connections, although its effects varied by country. It is sometimes confused with the Panic of 1873, another international crisis linked to railway speculation, but the earlier panic centered on Overend, Gurney’s collapse.