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The City of Glasgow Bank was a major Scottish bank which collapsed in 1878 causing widespread financial distress. The directors were tried and jailed for falsifying balance sheets

Early years
Founded in 1839. Early history v cautious. 1842 Robert Salmond appointed secretary and the bank began to follow a policy of expansion. 1848 acquired the Isle of Man Commercial Bank. Steadily increased the number of branches so that by October 1857 it had 116 bank offices, probably the largest banking system in the world at the time (New Edinburgh Almanac 1858 quoted Tyson). Some of its 11 Glasgow branches opened at night, and depositors were offered 5% more interest than that paid by other banks. Despite this rapid growth, the underlying position of the Bank was less secure than its Scottish competitors; profits as a percentage of capital were lower, and, as with the Western Bank, it embarked on the more adventurous policy of lending to merchant houses, insurance companies and the American railroads, notably the Racine and Mississippi. On 9th November 1857, following a sudden fall in railroad securities, and the failure of three major customers, a similar institution, the Western Bank, collapsed and the consequent withdrawals forced the City of Glasgow Bank to suspend operations on 11th November 1857. A committee of shareholders led by Sir William Dunbar, 7th Baronet was appointed to give advice, the directors resolved to abide by the “sound banking principles” recommended, and the bank re-opened on 31st December 1857.

These resolutions were ignored by later Bank directors, in particular William Mackinnon, who handled the American Railroad account (appointed 1858), Lewis Potter, a shipping merchant with substantial land investments in Australia and New Zealand (1858), Robert Salmond, the retiring expansionist bank manager, (1861) and James Nicol Fleming, recently returned from Bombay with a fortune from speculating in cotton (1863) – The Ballie 6 Nov 1878. Together with Alexander Stronach (bank secretary from July 1861) these directors were responsible for concealing the scale of the Bank’s unsecured lending which led to the bank’s collapse.

The Deadly Accounts
From 1873 the directors issued false balance sheets, enabling them to declare handsome profits and dividends, whereas, by the time of closure, investigators discovered that liabilities exceeded assets by some £5 million. Three quarters of the Bank’s total debt was owed to four accounts belonging to individuals associated with the Bank’s directors

Aftermath
The effect of the bank’s failure on Glasgow business was immense. Hundreds of firms folded as a result. The 1200 shareholders and their families suffered greatly. Their liability was unlimited and the failure ruined most of them. The directors, including Robert Stronach and C S Leresche were arrested, but Leresche later became a witness for the prosecution.

The remaining defendants were tried at the High Court in Edinburgh in January 1879 and all were found guilty. Robert Stronach and Lewis Potter, a director since 1858, were found guilty of fraud and each sentenced to 18 months imprisonment and the others to 8 months each.