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City of Glasgow Bank

January 07, 2023

The City of Glasgow Bank was a bank in Scotland that was largely known for its spectacular collapse in October 1878, which ruined all but 254 of its 1,200 shareholders since their liability was unlimited.

History

 
A cleared cheque from 1877

The bank was founded in 1839[1] with an initial capital of £656,250 (equivalent to about £46 million at 2005 prices). It aimed to cater particularly for small savers, with its branches opening in the evenings to receive deposits. It was part of a wave of bank formations that saw 16 Scottish banks established between 1825 and 1840. By the 1870ss the bank had grown to have the third-largest branch network in the United Kingdom.

As was common at the time its shareholders had unlimited liability and so they were jointly liable to cover any debts and were called to inject additional funds to cover any losses.[2]

The bank's principal office was established in Virginia Street, Glasgow in 1842 and moved to Glassford Street in 1851. During the Panic of 1857, the bank had to suspend operation but later reopened and continued trading.[3] For a long time before the bank's closure, dividends were paid at 9%-12%.

Collapse

On discovery of a £7,000 deficit (equivalent to £½ million at 2005 prices), the Bank's operations were suspended in November and December 1877, when by agreement with the other Scottish banks, the New York agency was closed.[4] All seemed well, and in June 1878, the bank announced that there were now 133 branches and deposits of £8 million (= £600 million at 2005 prices), and it declared a 12% dividend.[1]

On 2 October, however, the directors announced the bank's closure.[5] An examination after the closure showed net liabilities of over £6 million (equivalent to £500 million at 2005 prices), together with extensive loans on poor security and speculative investments in Australasian farming, mining stocks and American railway shares.[6] In addition, false reports of gold holdings were made to the authorities, balance sheets and profit and loss statements were falsified and the share price was held up by secret purchases of the bank's own stock.[7] So successful was the deception that on the Bank's last business day, its £100 shares were selling at £236.[7]

The directors were arrested and tried at the High Court in Edinburgh in January 1879. Their sentence was pronounced on 1 February. The Manager, Robert Stronach and Lewis Potter, who had been a director of the bank since its establishment, were found guilty of falsifying and fabricating the balance sheets of the bank and were given eighteen months imprisonment each. The other five directors were found guilty of uttering and publishing the balance sheets, knowing them to be false, and were sentenced to eight months imprisonment.[1][7]

Scores of Glasgow businesses failed as a result of the bankruptcy, and shareholders were called to make good the bank's losses. The case of one shareholder who sought to mitigate the consequence by arguing that he had become a shareholder through the fraud of the bank's agents was appealed unsuccessfully to the House of Lords ("Houldsworth's case", 1880, 7 R. (H.L.) 53).[8]

Depositors and note holders did not suffer, as other banks accepted their notes, and deposits were protected by the shareholders' liability.

The 1200 shareholders and their families suffered greatly. Their liability was unlimited, and the failure ruined most of them.[2] A public subscription was set up to help the shareholders, almost all of whom were bankrupted by the disaster, in the form of a national relief fund, which received £379,670 in donations by 1882.[9]

Wider effects of the collapse have been seen in the growth of limited liability and a temporary banking liquidity problem,[10] and a longer-term reduced trend in bank deposits across the UK.[11]

The legalities of the collapse and liquidation were overseen by Alexander Bennett McGrigor.[12]

The liquidation of the US assets, primarily holdings in railroad stock which amounted to $5,000,000, were handled by John Stewart Kennedy's firm J.S.Kennedy & Co.[13]

Archives

The bank's archives are now held in the Archives of the University of Glasgow.[14][15][16]

In literature

The Bank's collapse was vividly represented in the 1948 trilogy The Wax Fruit by Guy McCrone (dramatised by BBC Radio 4 in 2010). It also features in Mrs George de Horne Vaizey's 1910 novel A Question of Marriage.

Ken Follett’s "A Dangerous Fortune" pages 252,270,273,274,436

References

  1. ^ a b c . British Banking History Society. Archived from the original on 30 January 2014. Retrieved 5 June 2014.
  2. ^ a b "Desperate adventurers and men of straw: the failure of City of Glasgow Bank and its enduring impact on the UK banking system" (PDF). Bank of England.
  3. ^ Grossman, Richard (2010). Unsettled Account: The Evolution of Banking in the Industrialized World since 1800. Princeton University Press. p. 96. ISBN 978-1400835256.
  4. ^ "Records of City of Glasgow Bank, bankers, Glasgow, Scotland". University of Glasgow Archive Services.
  5. ^ "Bank must restore confidence". The Scotsman. 14 September 2007. Retrieved 5 June 2014.
  6. ^ Lloyd Pritchard, Muriel F. (1970). An Economic History of New Zealand to 1939. Auckland: Collins. p. 155.
  7. ^ a b c Rosenblum, Leo (December 1933). "The Failure of the City of Glasgow Bank". The Accounting Review (subscription required). 8 (4): 285–291. JSTOR 238146.
  8. ^ Nehme, Marina; Hyland, Margaret (2008). "Houldsworth: An Obsolete Piece in the Legislative Puzzle". University of Western Sydney Law Review. Retrieved 22 March 2016.
  9. ^ "Receipt for donation to relief fund". The Glasgow Story.
  10. ^ Manfred Pohl, Sabine Freitag, ed. (1994). Handbook on the History of European Banks. European Association for Banking History. p. 1145. ISBN 9781781954218.
  11. ^ Cottrell, P. J. (2004). Roderick Floud, Paul A. Johnson (ed.). Cambridge Economic History of Modern Britain. Vol. 2. p. 274. ISBN 9780521527378.
  12. ^ "TheGlasgowStory: Alexander Bennett McGrigor".
  13. ^ "JS Kennedy and the city of Glasgow bank". Dissertations in economic and business history.
  14. ^ "Recent Heavy Failures.; the Breaking of the City of Glasgow Bank. ITS Credit Known to Have Been Shaken Ten Years Great Dividends Paid Reckless System of Business Failure of a London Firm of East India Merchants". The New York Times. 4 October 1878.
  15. ^ . Archived from the original on 5 December 2008. Retrieved 23 December 2008.
  16. ^ Scotland’s ghost of banking meltdown pastwww.sundayherald.com, retrieved 2008-12-23 24 December 2008 at the Wayback Machine

External links

  • Report of the Trial of the Directors of the City of Glasgow Bank, 1879
  • "Stockholders of City of Glasgow Bank". Otago Daily Times. No. 5236. 28 November 1878. pp. 2–3. Retrieved 17 August 2015.

January 07, 2023
city, glasgow, bank, bank, scotland, that, largely, known, spectacular, collapse, october, 1878, which, ruined, shareholders, since, their, liability, unlimited, contents, history, collapse, archives, literature, references, external, linkshistory, edit, clear. The City of Glasgow Bank was a bank in Scotland that was largely known for its spectacular collapse in October 1878 which ruined all but 254 of its 1 200 shareholders since their liability was unlimited Contents 1 History 2 Collapse 3 Archives 4 In literature 5 References 6 External linksHistory Edit A cleared cheque from 1877 The bank was founded in 1839 1 with an initial capital of 656 250 equivalent to about 46 million at 2005 prices It aimed to cater particularly for small savers with its branches opening in the evenings to receive deposits It was part of a wave of bank formations that saw 16 Scottish banks established between 1825 and 1840 By the 1870ss the bank had grown to have the third largest branch network in the United Kingdom As was common at the time its shareholders had unlimited liability and so they were jointly liable to cover any debts and were called to inject additional funds to cover any losses 2 The bank s principal office was established in Virginia Street Glasgow in 1842 and moved to Glassford Street in 1851 During the Panic of 1857 the bank had to suspend operation but later reopened and continued trading 3 For a long time before the bank s closure dividends were paid at 9 12 Collapse EditOn discovery of a 7 000 deficit equivalent to million at 2005 prices the Bank s operations were suspended in November and December 1877 when by agreement with the other Scottish banks the New York agency was closed 4 All seemed well and in June 1878 the bank announced that there were now 133 branches and deposits of 8 million 600 million at 2005 prices and it declared a 12 dividend 1 On 2 October however the directors announced the bank s closure 5 An examination after the closure showed net liabilities of over 6 million equivalent to 500 million at 2005 prices together with extensive loans on poor security and speculative investments in Australasian farming mining stocks and American railway shares 6 In addition false reports of gold holdings were made to the authorities balance sheets and profit and loss statements were falsified and the share price was held up by secret purchases of the bank s own stock 7 So successful was the deception that on the Bank s last business day its 100 shares were selling at 236 7 The directors were arrested and tried at the High Court in Edinburgh in January 1879 Their sentence was pronounced on 1 February The Manager Robert Stronach and Lewis Potter who had been a director of the bank since its establishment were found guilty of falsifying and fabricating the balance sheets of the bank and were given eighteen months imprisonment each The other five directors were found guilty of uttering and publishing the balance sheets knowing them to be false and were sentenced to eight months imprisonment 1 7 Scores of Glasgow businesses failed as a result of the bankruptcy and shareholders were called to make good the bank s losses The case of one shareholder who sought to mitigate the consequence by arguing that he had become a shareholder through the fraud of the bank s agents was appealed unsuccessfully to the House of Lords Houldsworth s case 1880 7 R H L 53 8 Depositors and note holders did not suffer as other banks accepted their notes and deposits were protected by the shareholders liability The 1200 shareholders and their families suffered greatly Their liability was unlimited and the failure ruined most of them 2 A public subscription was set up to help the shareholders almost all of whom were bankrupted by the disaster in the form of a national relief fund which received 379 670 in donations by 1882 9 Wider effects of the collapse have been seen in the growth of limited liability and a temporary banking liquidity problem 10 and a longer term reduced trend in bank deposits across the UK 11 The legalities of the collapse and liquidation were overseen by Alexander Bennett McGrigor 12 The liquidation of the US assets primarily holdings in railroad stock which amounted to 5 000 000 were handled by John Stewart Kennedy s firm J S Kennedy amp Co 13 Archives EditThe bank s archives are now held in the Archives of the University of Glasgow 14 15 16 In literature EditThe Bank s collapse was vividly represented in the 1948 trilogy The Wax Fruit by Guy McCrone dramatised by BBC Radio 4 in 2010 It also features in Mrs George de Horne Vaizey s 1910 novel A Question of Marriage Ken Follett s A Dangerous Fortune pages 252 270 273 274 436References Edit a b c City of Glasgow Bank British Banking History Society Archived from the original on 30 January 2014 Retrieved 5 June 2014 a b Desperate adventurers and men of straw the failure of City of Glasgow Bank and its enduring impact on the UK banking system PDF Bank of England Grossman Richard 2010 Unsettled Account The Evolution of Banking in the Industrialized World since 1800 Princeton University Press p 96 ISBN 978 1400835256 Records of City of Glasgow Bank bankers Glasgow Scotland University of Glasgow Archive Services Bank must restore confidence The Scotsman 14 September 2007 Retrieved 5 June 2014 Lloyd Pritchard Muriel F 1970 An Economic History of New Zealand to 1939 Auckland Collins p 155 a b c Rosenblum Leo December 1933 The Failure of the City of Glasgow Bank The Accounting Review subscription required 8 4 285 291 JSTOR 238146 Nehme Marina Hyland Margaret 2008 Houldsworth An Obsolete Piece in the Legislative Puzzle University of Western Sydney Law Review Retrieved 22 March 2016 Receipt for donation to relief fund The Glasgow Story Manfred Pohl Sabine Freitag ed 1994 Handbook on the History of European Banks European Association for Banking History p 1145 ISBN 9781781954218 Cottrell P J 2004 Roderick Floud Paul A Johnson ed Cambridge Economic History of Modern Britain Vol 2 p 274 ISBN 9780521527378 TheGlasgowStory Alexander Bennett McGrigor JS Kennedy and the city of Glasgow bank Dissertations in economic and business history Recent Heavy Failures the Breaking of the City of Glasgow Bank ITS Credit Known to Have Been Shaken Ten Years Great Dividends Paid Reckless System of Business Failure of a London Firm of East India Merchants The New York Times 4 October 1878 Bank of Scotland 1695 Archived from the original on 5 December 2008 Retrieved 23 December 2008 Scotland s ghost of banking meltdown pastwww sundayherald com retrieved 2008 12 23 Archived 24 December 2008 at the Wayback MachineExternal links Edit Banks portalReport of the Trial of the Directors of the City of Glasgow Bank 1879 Stockholders of City of Glasgow Bank Otago Daily Times No 5236 28 November 1878 pp 2 3 Retrieved 17 August 2015 Retrieved from https en wikipedia org w index php title City of Glasgow Bank amp oldid 1131165048, wikipedia, wiki, book, books, library,

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