The 1866 London banking panic followed the collapse of Overend, Gurney and Company and is known as the Panic of 1866.
Overend, Gurney and Company began as a bill-broking business and became one of the most important financial firms in London. It converted into a limited company in 1865, but its balance sheet contained substantial problem loans. The firm suspended payments on May 10, 1866, triggering a rush for liquidity.
The panic spread through financial markets and caused many banks and companies to fail or suspend operations. The Bank of England initially faced limits imposed by the Bank Charter Act, which restricted the amount of notes it could issue against reserves. The government authorized the Bank to exceed those limits, helping restore confidence.
The episode strengthened the idea that a central bank should act as lender of last resort during a systemic panic. It also exposed the risks of transforming a respected financial name into a publicly traded institution without adequate control of credit quality.