Propagation and Containment: Financial Contagion and the Lender of Last Resort in 1772–73
The intervention by the BOE to contain the crisis was unprecedented in this century in terms of size and in the selection of instruments employed. Its motives cannot be established directly through surviving evidence, but there was widespread contemporary expectation of the BOE containing the crisis to the exclusion of all other agents. Private containment efforts also took place, but none were of the scale of that of the BOE. The key to establishing whether the BOE merits the name of LOLR is the existence of credible contagion mechanisms that the Bank was aware of and could influence through its intervention. Of the many such mechanisms the crucial one was transmission via the network of bills of exchange. Evidence shows that the market players rescued in 1772 were likely to be systemically important and that the BOE’s intervention in the bills market was optimally executed with the tools available to it, as per Henry Thornton’s later theorising.