The financial crisis that struck France in 1882 was the Paris Bourse’s worst panic of the 19th century. The downfall of leading French bank Union Générale was a key factor in the market collapse.
Leading up to the panic, property values had soared between 1872 and 1882. Seeking higher returns, speculative investors channeled their attention and savings towards French financial markets. In 1881 alone, more than 400 joint-stock companies were launched in France. According to Winton Capital, “shops were supplied with summarized prospectuses in which to wrap up customers’ parcels.”
In the midst of the frenzy, Union Générale rose to prominence as France’s preeminent “Catholic bank”. However, eventually, Union Générale’s rapid expansion of credit to brokers and overly risky railway loans led to a sharp decline in value when market conditions changed.
The Panic began as Union Générale started to face liquidity issues and rapidly collapsed in early 1882. Their failure sent shockwaves throughout France’s financial markets as investors rapidly sold off shares in a desperate attempt to minimize losses, which exacerbated the issue.
In response, French authorities stepped in with bailout measures to limit further damage and restore confidence in financial markets.
Read More: Panic Series (Pt. VIII): 1882