2nd October 1878

The City of Glasgow Bank collapses

“Failure of City of Glasgow Bank,” ran the headline in the Dundee Evening Telegraph of 2 October 1878. It was big news, as the bank, one of the biggest in Britain, had crashed with big debts in the wake of what the paper called “alleged grave mismanagement”.

A fast-growing bank

The City of Glasgow Bank had been founded in 1839 and in less than 40 years opened 133 branches across Scotland. Thus, according to the Dundee Evening Telegraph, “the failure of the City of Glasgow Bank has come upon the community of Scotland like a thunder-clap… ugly rumours [had] prevailed about the stability of the City Bank for a week past, but they were discredited. It was only near 11 o’clock last night that the failure was communicated to the newspapers.”

Thus, on 2 October, the branches didn’t open their doors for the first time.

Regarded with distrust

The Dundee Evening Telegraph quoted that morning’s Edinburgh Courant, which explained that “The City of Glasgow Bank has for a considerable time been regarded with a certain amount of distrust among the Scotch banks, as well as in London… [the banks] sent an accountant to Glasgow yesterday forenoon in order to make an investigation. The result was so unsatisfactory that the banks did not see their way to interpose.”

While this would have been worrying news for the bank’s customers, who must have wondered whether they would be able to withdraw their savings, it was perhaps of even greater concern to its investors, as they were not protected the way modern day shareholders are, and were thus liable for its debts. Many of them were ruined by the collapse, and although the customers were protected, some businesses went bankrupt.

Banking debts and bad investments

These debts had been run up by the bank’s administrators who had not only made bad investments, but claimed to have holdings of gold that apparently didn’t exist.

The directors were tried on charges of fraud the following year. On 1 February 1879, the Kelso Mail reported that “to-day, the twelfth day of the trial, at eleven o’clock, Lewis Potter and Robert Stronach were sentenced to 18 months’ imprisonment… some such sentence was inevitable from the finding of the jury last night, who gave in a unanimous verdict finding Mr Potter and Mr Stronach guilty of concocting and fabricating false and fictitious abstract balance sheets and statements of affairs for the year 1876, 1877 and 1878… news of the verdict and sentence has been received by the general public with a sense of relief, and generally has been favourably commented on.”