The Baring crisis or the Panic of 1890 was an acute

recession In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be tr ...

in the

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

. Although less serious than other panics of the era, it is the 19th century’s most famous

sovereign debt crisis A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full when due. Cessation of due payments (or receivables) may either be accompanied by that government's formal declaration that it wil ...

, and the 17th largest decline in U.S. stock market history.

Background

The crisis was precipitated by the near insolvency of

Barings Bank Barings Bank was a British merchant bank based in London. It was one of England's oldest merchant banks after Berenberg Bank, Barings' close collaborator and German representative. It was founded in 1762 by Francis Baring, a British-born member ...

in London. Barings, led by Edward Baring, 1st Baron Revelstoke, faced bankruptcy in November 1890 due mainly to excessive risk-taking on poor investments in Argentina.

Argentina Argentina, officially the Argentine Republic, is a country in the southern half of South America. It covers an area of , making it the List of South American countries by area, second-largest country in South America after Brazil, the fourt ...

itself suffered severely in the recession of 1890 with its real GDP falling by 11 percent between 1890 and 1891. An international consortium assembled by William Lidderdale, governor of the

Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...

, including

Rothschilds The Rothschild family ( , ) is a wealthy Ashkenazi Jews, Ashkenazi Jewish noble banking family originally from Frankfurt. The family's documented history starts in 16th-century Frankfurt; its name is derived from the family house, Rothschild, ...

and most of the other major London banks, created a fund to guarantee Barings' debts, thereby averting a larger depression. Nathan Rothschild remarked that if this had not happened, perhaps the entire private banking system of London would have collapsed which would have caused an economic catastrophe. The international financial distrust generated by this crisis burst the

bubble Bubble, Bubbles or The Bubble may refer to: Common uses * Bubble (physics), a globule of one substance in another, usually gas in a liquid ** Soap bubble * Economic bubble, a situation where asset prices are much higher than underlying fundame ...

in the

Brazil Brazil, officially the Federative Republic of Brazil, is the largest country in South America. It is the world's List of countries and dependencies by area, fifth-largest country by area and the List of countries and dependencies by population ...

ian economy, which had been inflating since the previous decade, bringing forward its expected end and seeing a Brazilian

financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with Bank run#Systemic banki ...

, which in turn along with Argentine and

Uruguayan Uruguayans () are people identified with the country of Uruguay, through citizenship or descent. Uruguay is home to people of different ethnic origins. As a result, many Uruguayans do not equate their nationality with ethnicity, but with citizen ...

crises slashed repatriations and short-term investment by European

immigrants Immigration is the international movement of people to a destination country of which they are not usual residents or where they do not possess nationality in order to settle as permanent residents. Commuters, tourists, and other short- ...

from Latin America to their countries of origin, affecting the region significantly in the 1890s.

Background

See also

References

Further reading