City of Glasgow Bank

The City of Glasgow Bank is now largely known for its spectacular collapse in October 1878, ruining all but 254 of its 1,200 shareholders, whose liability was not limited. It was the last case of a British bank run until that of Northern Rock in 2007.

General

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A cleared cheque from 1877

The Bank was founded in 1839, with an initial capital of £656,250 (about £46m at 2005 prices). It aimed to cater particularly for small investors, with its branches opening in the evenings to receive deposits; its name is said to have been designed to allude to that of the City Bank of New York.

The principal office was established in Virginia Street, Glasgow in 1842, and moved to Glassford Street in 1851. During a banking crisis in 1857 the City of Glasgow Bank had to suspend operation but was then able to reopen and continue trading. For a long time before closure dividends were paid at 9%-12%.

The Collapse

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

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

The directors were arrested and tried at the High Court in Edinburgh in January 1879. All were found guilty and sentenced to terms of imprisonment between eight and eighteen months.

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).

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

Archives

The Bank's archives are now held by the University of Glasgow

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.

External links

• Report of the Trial of the Directors of the City of Glasgow Bank, 1879