Baring Crisis

The Baring crisis or the Panic of 1890 was an acute recession, although less serious than other panics of the era, still it is the nineteenth century’s most famous sovereign debt crisis. It was precipitated by the near insolvency of Barings Bank 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 itself suffered severely in the recession of 1890 with its real GDP falling by 11 percent between 1890 and 1891, the effects of which are illustrated by the picture in this article. An international consortium assembled by William Lidderdale, governor of the Bank of England, including Rothschilds and most of the other major London banks, created a fund to guarantee Barings debts, thereby averting a larger depression. Natty Rothschild remarked that if this had not happened, perhaps the entire private banking system of London would have collapsed, which would have created a tremendous economic catastrophe.
The international financial distrust generated with this crisis helped to blow a bubble in the Brazilian economy, which had been inflating since the previous decade, anticipating both its expected end, as the financial crisis that followed on that country, which in turn along with Argentine and Uruguayan crisis, dramatically decreased the amount of money sent by European immigrants to their countries of origin, also affecting the economy overseas in the 1890s.

The Baring crisis had an effect on the United States. John T. Flynn wrote in his 1932 book: “The preceding year the great Baring failure had shaken London and the rest of the financial world. America was shielded from its most virulent effects because of a bountiful wheat crop. But the following year all the forces of business disturbance were assembling, though the country as a whole hardly realized it. Gold was leaving the country at an alarming rate.”