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City Of Glasgow Bank Failure

Towards the end of September 1878 the Glasgow News published a report that hinted at a concern regarding a Scottish Bank unspecified. So far as the public was concerned, the City of Glasgow Bank gave the impression of undoubted stability. It was in many quarters regarded as the most progressive of the Scottish banks, particularly in the international scene where it had considerable dealings in America, India and Australia. Its branch system was the largest; and its stock commanded a good price in the market, although it afterwards came to light that this was maintained by the City Bank's purchases of its own shares.

However, on 18 October 1878 an Investigator's Report was published, revealing to an astonished public that the bank's most recent balance sheet was a fraud, the sum of £5,190,983 had been lost by the Bank in circumstances of some dubiety, to say the least. Immediately on its publication the six directors, the manager and the secretary of the bank were arrested. This was no case of business misfortune but one of unsound and dishonest methods, and the deliberate hoodwinking of the shareholders and the public.

Pulpits throughout the land thundered on Sunday, 20 October 1878, as the principals in the case had strong Free Church connections. At the secession in 1843 Free Churchmen had taken as one of their objectives the 'raising of moral standards', and this had not been forgotten. The people who had brought the bank down included the bank's manager, Robert Stronach; Lewis Potter, a wealthy merchant; Robert Salmond, a former manager; accountant William Morrison; plus a magistrate, a prominent mason and three other businessmen -James Morton, J. Nicol Fleming and John Innes Wright.

The fraud perpetrated was complicated. For example, large sums (generally £10,000) were drawn by Morton weekly, sometimes on his own account and sometimes on behalf of his firm against IOUs initialled by Stronach and recorded in a private ledger seen only by the board and Morrison the accountant. The funds were largely used for colonial speculations.

The trial of these men lasted 12 days, with Potter and Stronach being found guilty of falsifying balance sheets and sentenced to 18 months' imprisonment. The others were found guilty of uttering them (putting these forgeries into circulation) and given eight months, much to the anger of the public, who had called for much heavier penalties. The Edinburgh Courant of 22nd of October 1878 summed up the plight of the bank's shareholders: " It will long be remembered by thousands in Scotland as the saddest and darkest [day] in their history, in as much as it carried ruin and desolation into happy homes in almost every town and village in the country . . ."

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