Oliver Heywood's diary, 1866

Oliver Heywood was a man who knew the value of learning from other people's mistakes. He was senior partner in the Manchester-based bank Heywood Brothers & Co. The firm had a long-standing reputation for quiet reliability; as one contemporary put it, 'no one ever heard of anything greedy or sensational about the Heywoods. There was a certain pleasant sense of tranquillity and refinement on going into the place.'

Tranquillity was in short supply among banks when Oliver Heywood wrote these diary notes in 1866. This was the time of the Overend, Gurney crisis, when a 'mania of terror' (as The Times described it) swept London's financial sector.

The crisis was sparked by the failure of the finance firm Overend, Gurney & Co. Since its foundation 60 years earlier, Overend, Gurney had built a reputation as a safe house, a bankers' banker, but behind the scenes some reckless dealings by a new generation of partners had undermined its stability. Bad debts were mounting, and although the firm tried to strengthen its position in 1865 by floating as a limited company, this only compounded its problems.

In spring 1866 several firms connected with Overend, Gurney collapsed. Rumours multiplied and Overend, Gurney's own credit diminished daily. The bank rate soared. On 10 May 1866, Overend, Gurney had to close its doors, insolvent to the tune of £5m. Market jitters erupted into panic. The next day, 'Black Friday', saw the bank rate reach 10%. Crowds gathered in Lombard Street, where Overend, Gurney and many other finance houses were based. Chancellor of the Exchequer William Gladstone granted emergency permission for the Bank of England to exceed its fiduciary issue, if it became necessary. In fact, the crisis gradually eased, but not before many firms had been ruined.

Oliver Heywood was visiting London at the time, and witnessed these extraordinary events at first hand. On the morning of Black Friday he took the earliest train home to Manchester so he could be at his desk at this difficult time. He got there before news of the crisis broke, and in fact Manchester was to remain calm throughout the tough months that followed. Heywood Brothers itself emerged from the crisis relatively unscathed.

'the lesson has been valuable'

Throughout this difficult period, and although he must have been busy with other work, Oliver kept extensive notes. He recorded the latest events; their effects upon his bank; what the newspapers were saying; what arguments were being put forward about causes and solutions; and what he himself thought. Sometimes he noted 'questions for consideration' which he wanted to revisit later.

Heywood's notes were part of his determination to draw lessons from everything that had happened. As early as Friday 18 May, he had enough perspective on events to reflect that 'the lesson has been valuable'.