THE COLLAPSE of an Irish bank, caused by corrupt directors who embezzled funds and secretly took out unsecured loans to illegally gamble in the property market, has been revealed in previously unpublished documents.
An investigation into the failure of the bank, which resulted in a wipe-out of shareholders, shows evidence of massive fraud by bank directors and staff – yet no one went to jail.
The revelations relate to Munster Bank which went into liquidation 126 years ago. An archive, including the bank’s ledger and minute books, will be sold in Dublin next week by auctioneers Whyte’s and is expected to fetch between €800 and €1,000.
Auctioneer Ian Whyte said the paperwork from the 19th-century liquidators showed “the failure of the bank bears remarkable similarities” to the recent bank collapses.
Munster Bank was set up in 1864 and attracted deposits from small savers nationwide but especially from people living in small towns in the counties of the south and southwest.
By the 1870s, the bank held almost 8 per cent of all Irish savings and had more than 3,800 shareholders. But, by July 1885, an accumulation of bad debts and the inability of directors to repay their loans caused the bank to run out of cash and close all its branches.
The closure created huge publicity, resulting in queues of depositors outside branches desperate to withdraw their savings. There was even a riot outside the branch in Kildysart, Co Clare.
The liquidators uncovered evidence that the directors were illegally taking loans from the bank and that “insider trading” had artificially boosted its share price shortly before the collapse. The directors had speculated in property, including investing in “villas” in Cork and in commercial property, and had also approved loans to their “cronies”.Shareholders who had “invested the earnings of years, in some cases of a whole lifetime . . . were rendered, by its failure, absolutely or very nearly penniless”, the liquidators noted.
One of Munster Bank’s senior, Dublin-based managers George Farquharson “absconded having defrauded the bank to a large amount”. He had embezzled cash and gold worth more than £84,000 – a huge amount in the late 19th century. There were subsequent alleged sightings of him in Scotland, Norway, Amsterdam and the United States but he was never caught.
Cormac Ó Gráda, of the UCD school of economics, who has researched the collapse of the bank, found that “nobody ended up in jail in the wake of the Munster’s failure”. The depositors eventually got most of their money back when the defunct bank’s operations were taken over by the newly created Munster and Leinster Bank which, in turn, was eventually absorbed into what became AIB.
