Bank Failures

The century saw a number of bank failures. Charles Kerr (Number 53) was manager of the Edinburgh and Glasgow Bank (envelope addressed to Kerr at the bank) that, in 1847, speculated unwisely on railway shares. At a special meeting of shareholders it fell to Kerr to admit that in the three prior years the bank had lost £250,000. Yet in spite of these huge losses the Chairman, Edinburgh’s then Lord Provost, assured shareholders that the bank had sufficient funds to carry on with efficiency. This proved untrue; the Clydesdale Bank bailed out the bank and took over its 27 Scottish branches. A number of the bank’s key staff, including Kerr, were successfully sued by John Cullen, solicitor, acting on behalf of a number of shareholders who had lost money. Coincidentally, John Cullen had lived at 27 Albany Street twenty years before. In 1875, the Institute of Bankers in Scotland was formed to improve standards. Up till then, the education of bankers in the theory and practice of their profession had been arbitrary. One of those invited to give lectures to the new body was W. D. Thorburn (who lodged at Number 19 for seventeen years until his death in 1887), an advocate with special expertise in the law of banking who wrote extensively on the subject.

Yet, the creation of a body to improve professional standards in banking did not stave off further bank failures. One of the most disastrous occurred in 1878. ‘This great social and commercial disaster - the result of utterly reckless and dishonest speculation on the part of the Board of Directors ’, was how one newspaper reported the collapse of the City of Glasgow Bank. As more information came to light the newspaper’s accusations of speculation changed to ones of fraud: ‘Shareholders have seen in the case of the City of Glasgow Bank how fraud may empty the coffers of such institutions. It has impoverished men of great wealth.’ Amongst those with the largest losses were John Galettly (Number 22) who lost £3,200, and the Minister of Albany Street Church, John Pulford, who lost £1,.500.

Established in 1839, the City of Glasgow Bank catered particularly for small investors with branches opening in the evenings to receive deposits. In June 1878, the directors reported that there were now 133 branches of the bank, that business was booming with deposits of £8m, and the Bank had capital reserves totalling £1.6m. Given the health of the bank they declared a dividend to shareholders of 12 per cent. However, following the bank’s collapse soon after, it was discovered that in fact the Bank had a deficit of an astonishing £5.19m as a result of large loans made to borrowers on inadequate security, and speculative investments in land, sheep, farms and wool in New Zealand and Australia. To cover up these disastrous losses the directors had fabricated the accounts and maintained the high share price by secret purchases of the Bank's own stock. As a result of the insolvency hundreds of firms, especially in Glasgow, folded and the 1,200 shareholders and their families lost their money. The directors were charged with deception. The advocate Charles Pearson (Number 7) was in charge of the prosecution of the bank’s directors, all of whom were sent to prison. (engraving of the trial)