City of Glasgow Bank
Encyclopedia
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.
in 1842, and moved to Glassford Street in 1851. For a long time before closure dividend
s were paid at 9%-12%.
On 2 October, however, the director
s 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.
Scores of Glasgow businesses failed as a result of the bankruptcy
. The directors were arrested. They were tried at the High Court
in Edinburgh
in January 1879. All were found guilty and sentenced to terms of imprisonment.
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...
was not limited. It was the last case of a British Bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
until that of Northern Rock
Northern Rock
Northern Rock plc is a British bank, best known for becoming the first bank in 150 years to suffer a bank run after having had to approach the Bank of England for a loan facility, to replace money market funding, during the credit crisis in 2007. Having failed to find a commercial buyer for...
in 2007.
General
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, GlasgowGlasgow
Glasgow is the largest city in Scotland and third most populous in the United Kingdom. The city is situated on the River Clyde in the country's west central lowlands...
in 1842, and moved to Glassford Street in 1851. For a long time before closure dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s 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 director
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
s 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.
Scores of Glasgow businesses failed as a result of the bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
. The directors were arrested. They were tried at the High Court
High Court of Justiciary
The High Court of Justiciary is the supreme criminal court of Scotland.The High Court is both a court of first instance and a court of appeal. As a court of first instance, the High Court sits mainly in Parliament House, or in the former Sheriff Court building, in Edinburgh, but also sits from time...
in Edinburgh
Edinburgh
Edinburgh is the capital city of Scotland, the second largest city in Scotland, and the eighth most populous in the United Kingdom. The City of Edinburgh Council governs one of Scotland's 32 local government council areas. The council area includes urban Edinburgh and a rural area...
in January 1879. All were found guilty and sentenced to terms of imprisonment.
Archives
The Bank's archives are now held by the University of GlasgowArchives of the University of Glasgow
The Archives of the University of Glasgow maintain the historical records of the University of Glasgow back to its foundation in 1451. Its earliest record is a charter dating from 1304 for the lands of the earliest mention of record-keeping in the University is in 1490 when it is recorded in...