In a panic, the reserve-holding bank should lend money freely to anyone with good securities, charging a high interest rate. The high rate deters those who do not truly need cash while free lending halts the scramble for reserves; refusing to lend worsens the panic by confirming the scarcity people fear.
England concentrated its entire banking reserve in one institution, the Bank of England, rather than each bank holding its own. This made the system efficient in calm times but dangerously fragile, because the whole country's safety depended on one reserve that one board managed.
A financial panic is not a rational calculation but a spreading emotional state in which fear itself becomes the destructive force. Depositors demand cash not because any single bank is insolvent but because they see others demanding it, so the run is self-fulfilling and feeds on its own momentum.
The Bank of England held the nation's reserve in fact but refused to admit the duty that came with it, governing as if it were an ordinary profit-seeking bank. A duty performed in denial is performed badly; the holder of the final reserve must publicly accept the obligation to act in a crisis so it prepares and acts decisively.
Overend, Gurney and Company, once a respected discount house, failed after shifting from safe bill-broking into reckless long-term speculation, and its suspension in 1866 triggered nationwide panic. The case shows how a formerly sound firm destroys itself and endangers others once its managers abandon the discipline that built its reputation.
Credit is a set of promises to pay built up gradually through experience and habit, which lets a small base of actual cash support a vast superstructure of transactions. Because it rests on trust rather than coin, it can be shattered suddenly by a shock and cannot be quickly rebuilt once broken.