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UP to the time when
Thomas Kinnear & Sons commenced business, the banking business of
Scotland was entirely confined to Edinburgh. It was not until the
succeeding year that the first attempt at provincial banking was made.
Owing to the jealous and vindictive policy of the two public banks, it
proved unsuccessful. The first country bank was erected in Aberdeen
(1749), by Messrs. Livingston, Mowat, Bremner & Dingwall, as the Banking
Company at Aberdeen. (They were the first private company to issue bank
notes in Scotland. [Fleming.]) This movement was well timed, and was
calculated to be of great service to the important district of
Aberdeenshire. The Scottish Jacobite troubles were practically settled
for ever, by the discountenance shown to the Stuarts subsequently to the
Treaty of Aix-la-Chapelle; and the conclusion of the Austrian war of
succession gave a period of peace to the harassed European powers. This
satisfactory state of matters permitted attention to be devoted to the
encouragement of British industry, and the country ceased to be drained
of its blood and treasure. Circumstances looked favourable for the
extension to the provinces of Scotland of those banking facilities which
were so beneficial to the metropolis. But the wisdom of the
ever-intelligent and enterprising Aberdonians was destined, in this
matter, to be thwarted at the outset by the narrow monopolistic views of
the financial magnates of the capital.
It does not appear,
however, that the Edinburgh banks paid much attention to the Aberdeen
bankers, until they showed symptoms of proving formidable rivals in the
matter of circulation of notes, and until a similar danger manifested
itself in Glasgow. The Bank of Scotland and the Royal Bank then
established an agent in Aberdeen, to encourage the circulation of their
own notes, and to collect those of the new company, and to get them
retired for specie or Edinburgh notes. The scarcity of coin in the
country proved the ruin of the Aberdeen Company. They could not long
sustain the drain on their resoures, and accordingly towards the close
of 1753 —after little more than four years' existence—they gave public
notice of the dissolution of their partnership and their cessation of
the issue of notes.
The biassed author of the
narrative of their downfall attributes their inability to withstand the
assault of the Edinburgh banks to their own inherent want of strength,
without reflecting that the Bank of Scotland itself had more than once
given way from want of specie in its coffers. It may be that the
Aberdeen adventurers were injudicious in the extent to which they pushed
their issues in proportion to their metallic reserves; but the fierce
attack of the comparatively wealthy, and wholly unsympathetic, Edinburgh
banks was of itself sufficient to put a stop to their operations. As it
is, there is no assertion that they at any time failed to meet demands
made on them, and their retirement from business was entirely voluntary.
Elsewhere, it is true, there is record of an application to the Clerks
of Session to register a protest of the Aberdeen bankers' notes, in
order that summary diligence might pass on them, which was referred to
the Judges, and unanimously refused as incompetent; but it does not seem
that whatever delay may have occurred through the unworthy tactics of
the public banks, that the partners' credit was at any time doubted. A
disinterested judgment must, in the absence of further evidence, ascribe
the failure of this, the earliest attempt to establish that magnificent
system of country banking which has proved one of the distinguishing
features of Scottish banking, to the prejudice and short-sighted
self-interest of the two oldest banks.
But a greater danger in
the matter of competition was engrossing the attention of the Edinburgh
banks; and, flushed with their success in the north, they soon bent
their energies to the suppression of formidable rivals who had arisen in
the western capital. Up to the year 1749, the merchants of Glasgow were
entirely dependent on the Edinburgh banks for banking accommodation;
and, notwithstanding the competition between the two banks, cash credits
were very sparingly granted, and capriciously withdrawn. The Glasgow
merchants favoured the New in preference to the Old Bank (they were
always so distinguished in those days), and this had favoured the
circulation of the notes of the former. The increasing business of the
city made this dependence inconvenient; and the merchants made a
proposal to the two banks to establish an office in Glasgow for the
transaction of their local business. Whether from mutual jealousy, or
from a mistake in judgment as to the effect of such action, this
opportunity of preserving their monopoly of the banking business of
Glasgow was, happily for the prosperity of that city, lost to the
Edinburgh banks.
In order, however, to
improve its position among the Glasgow merchants, the Bank of Scotland,
in the same year that the bank at Aberdeen was started, promoted the
establishment of a banking company in Glasgow, under the designation of
the Ship Bank, the firm being Dunlop, Houston & Co. [In Campbell's
Historical Sketches of Greenock an interesting story is told of an
imposition on this bank early last century. A man, purporting to be Sir
Thomas Maitland, Admiral and Lieut.-General, drove up to the bank, in a
magnificent hired equipage, and presented his order on Smith, Payne &
Smith for £90. Both writing and spelling were defective ; but Mr. Rowand,
the manager, seems not to have expected proficiency in such matters from
a distinguished sailor and soldier. He was particular enough, however,
never to discount to a stranger without an introduction. As Sir Thomas
professed to know the minister of the Gorbals, he was referred to him
for an endorsement. In due time he returned with the reverend
gentleman's name on the back of the draft, and got the cash with a
superfluity of deference. Doubts having presented themselves to the mind
of the chief clerk, he submitted them to the manager, who sent to the
clergyman to ask him to verify his signature, when it was discovered to
be a forgery. The "admiral" was then sought for, and eventually found in
the Highlands, whither, discarding his grand get-up, he had fled. He
confessed that he was a discharged soldier who had lost an arm at
Badajoz. The banker was so badgered at the trial by the prisoner's
counsel—Erie Monteith— that he declared he would rather have lost the
money than have come through such an ordeal. The prisoner was sentenced
to be hanged; but Mr. Rowand exerted himself so strongly in his favour
that the sentence was commuted to transportation. There is a smack of
the sea and piracy, appropriate to a reference to the Ship Bank, about a
statement in Banking in Glasgow that "it was the duty of the youngest
apprentice to protect the treasure during the night, for which purpose
he was armed with a gun, powder-horn, and a few charges of slugs, and
locked in till morning. A bugle lay beside him to sound an alarm. For
this dangerous service he received a present of £1: 10 : 6 yearly."] Not
to have the wind taken out of their sails, the Royal Bank next year got
up the Glasgow Arms Bank of Cochran, Murdoch & Co. Each of the new
companies got cash credits from their respective patrons. Self-confident
in the superiority of their resources, and over-estimating the
dependence of the western traders, who themselves appear to have been
unconscious of their own powers, the Edinburgh banks regarded these new
bankers merely as agencies for the conservation and encouragement of
their business. With true Glasgow precocity, however, the banking
chickens had hardly chipped the shell ere they began to forage on their
own account.
At last, realising the
gravity of the case, the two old banks united their efforts to crush
their proteges ere years should give them strength. They withdrew the
credits granted, and ordered the two firms to give up their business.
But the Glasgow merchants were not to be thus browbeaten; and, while
desirous to maintain amicable relationships, declined to do as they were
told. In this action they were well supported by the public spirit of
the inhabitants. The Edinburgh banks then commenced a series of those
persecutions with which they had formerly afflicted each other and the
Aberdeen company. For this purpose they employed Mr. Archibald Trotter,
once a partner in the house of John Coutts & Co., who had settled in
Glasgow in 1757, to collect notes of the new firms and present them for
payment in considerable sums. They had, however, heavy metal to deal
with. The Glasgow bankers were not slow to adopt the petty tricks for
delaying payment which had been taught them by their oppressors. It
would even seem that, in several cases of delayed payment of notes which
occurred, they acted not so much from want of cash, as with the object
of tantalising their quondam patrons. The strife drifted into
litigation, and was not closed for several years; but the independence
of the new banks was secured. The older of the two—the Ship
Bank—maintained an active career until 1838, when it merged in the
Glasgow Union Bank, having, in the year previous, amalgamated with the
Glasgow Banking Company, as the Glasgow and Ship Bank. The Glasgow Arms
Bank, which was the one that Trotter had most trouble with, was not so
fortunate, for it got into difficulties, and was sequestrated in 1793.
The partners eventually paid their liabilities in full, without
interest.
About this time private
banking seems to have advanced apace in Edinburgh. Between 1750 and 1760
some ten private firms appear to have come into existence; so that with
those previously in business, there appear to have been about twenty
private banks in operation at the last-named date. The most important of
those not already referred to were the houses of Adam & Thomas Fairholme,
Wm. Cuming & Sons, Wm. Alexander & Sons, and Seton & Houston. Of these,
all but the Cumings, and perhaps Seton & Houston, engaged in corn and
other commission businesses as well as banking-----a combination which
proved their ruin some years later. It was about this time (1761) that,
as Sir William Forbes tells us, his firm gave up speculation and devoted
themselves exclusively to banking, to which action he rightly attributes
their further success. Other firms which arose in the decade, 1750 to
1760, or immediately previous to it, were William Hogg & Son, in whose
house the afterwards eminent Dr. Robert Hamilton spent some of his
earlier years; Johnstone & Smith (afterwards Johnstone, Smith & Co.),
Fordyce, Malcolm & Co., Arbuthnot & Guthrie, Gibson & Hogg (subsequently
Gibson & Balfour), Scott, Moncrieffe & Ferguson, and Andrew Sinclair &
Co. [Sir W. Forbes (followed by Mr. Richardson) styles this firm W.
Sinclair & Co. No confirmation of this has been found. Perhaps it was a
misprint.] Of individual bankers, George Chalmers, Samuel Foggo, John
Fyffe, and William Hogg, jun., probably complete the list. Most of these
had passed away by 1772. They were mainly mercantile houses, but dealt
in exchange business, and banking generally, as occasion offered.
From a curious paper
published at Edinburgh in 1778, entitled "Bank Disputes," reference is
made to a "convulsion of credit 1761 and odd years, in which the Royal
Bank took no part." What is meant is not exactly apparent; for, although
the Seven Years' War (1756-63) disturbed the circulation of specie in
Scotland, we are unaware of any special crisis which occurred in
consequence beyond the action of the banks (including the Royal) in
December 1761, in reducing cash accounts by one-fourth. This proceeding
seems to have been absolutely necessary, in order to replenish the
reserves of coin. A contemporary account states that "exchange has risen
so high that bills on London, at a short date, sell at Edinburgh at four
and a half and even five per cent, a rate considerably higher than
exchange has amounted to for forty years." One of the causes
contributing to this condition of the money market appears to have been
the realisation of funds in Scotland by proprietors desiring to purchase
the public funds, which were then at very low prices, consols being
quoted, even after the peace in 1764, at 45 per cent. This money was
paid in Scottish bank notes; and, it being necessary, in order to remit
the funds to London, to exchange them, there arose an extraordinary
demand for cash or bills upon London on all the banking companies in
Scotland. [Logan, 2nd ed. p. 79.] The year 1761 appears to be in the
natural series of periodic crises.
In January 1762, the
Edinburgh banks made a further restriction on holders of cash credits,
prohibiting them from paying in and drawing out money on the same day.
This provision appears to have been aimed at the private bankers, whose
practice was to draw out a supply of cash every morning, and re-deposit
the balance on hand in the afternoon. The prohibition must have been
afterwards withdrawn, for the practice continued till the close of
private banking. In March following, the banks took a further step to
strengthen their position, for we find them advertising as follows:
"Both the banks at Edinburgh, established by Parliamentary authority,
hereby give notice, that they have resolved to receive in money at their
respective offices, in the way of borrowing, on the treasurer or
cashier's receipts, for six months certain, or longer, as shall be
agreed on, at the rate of five per cent per annum; and at four per cent
per annum repayable on demand, on cash accounts, free of all charges.
That this measure is taken to avoid the inconvenience of a sudden call
upon their debtors, and towards the support of public credit, trade, and
manufactures, which have always been the care of the banks." At this
time the notes of the Bank of Scotland bore the well-known optional
clause, an option of which they seem to have taken the benefit in some
instances (for the first time, it was believed) by marking notes
presented for payment; [Scots Magazine, April 1762.] but those of the
Royal Bank were payable on demand. The exchange on London had now fallen
considerably, and by April the rate was only ¾ per cent ; and so the
crisis passed away. Next year the banks gave notice that they had
resolved to repay the deposits taken at 5 per cent, as they were unable
to make a -profitable use of the money.
In passing, we may refer
to a few points worthy of notice which occurred during the period we
have just gone over. By the year 1750 the metallic currency of Scotland
had become almost entirely replaced by the notes of the public banks.
The country was always deficient in coin, so the circulating medium
supplied by the banks was readily appreciated; and, as there was an
almost incessant drain of specie to England, the tendency of paper to
drive out coin was accelerated. In 1752 the Bank of Scotland and the
Royal Bank commenced the system of note exchanges [Reid's Manual. Also
Logan.] which has (with modifications) continued to the present time,
and to which must be greatly attributed the high character for
convertibility always attaching to the issues of the banks in Scotland.
Guinea notes were first issued by the Royal Bank in 1758, and bore the
date 24th March.
The success of the two
Glasgow banks does not seem to have furthered the development of country
banking for some time, as we find that no other bankers entered the
field out of Edinburgh up till 1761, a period of eleven years from the
establishment of the Glasgow Arms Bank. In that year (3rd November),
however, the Thistle Bank Company of Sir Walter Maxwell of Pollock,
Bart., James Ritchie & Co. commenced business. This firm merged in the
Glasgow Union Bank in 1836, after a prosperous career of seventy-five
years. David Watson, whose firm became afterwards James & Robert Watson,
also founded a private banking house in Glasgow about this time; but the
business appears to have been more an agency for other banks than an
independent one. Dundee was the next town to take up the trade of
banking. In 1763 the firm of George Dempster, Esq., & Company commenced
as bankers, under the designation of the Dundee Banking Company. Unlike
the Glasgow banks, this was (in form at least) a regular joint-stock
company, the original partners in which numbered thirty-six, with a
nominal capital of £12,600 in 63 shares of £200 each. Of this, only
one-tenth was called up at first. The bank got into difficulties in
comparatively recent years; but it was restored to a prosperous career
by the discretion of the late Mr. C. W. Boase, who was appointed
manager. While still under his management, the bank, which had then a
capital of £100,000 paid up, and a large business, was amalgamated with
the Royal Bank of Scotland in 1864. [A Century of Banking in Dundee, C.
W. Boase, Edinburgh, 1864 and 1867.]
Another incident which
deserves notice within this period was the failure, in March 1764, of
Messrs. Adam & Thomas Fairholme. They had not been long established as
bankers; but Sir William Forbes states that "the family of Fairholme had
for some generations been considered as of distinguished credit and
reputation." He adds, "They dealt largely in corn like their neighbours,
in receiving money on deposit, and in exchanges." During the Seven
Years' War, Government stocks were depressed in price, and Adam
Fairholme speculated largely in them. Prices rose in prospect of peace,
and he might have secured a large profit (estimated at £70,000). But,
eager to make still larger gains, the play was continued until not only
was the profit lost, but the firm was crushed under an overload of
obligations.
No other banking failure
occurred at this time, but the effects of this crisis, while not
serious, are described as "extremely unpleasant." The rates of exchange
on London ruled from 3 to 5 per cent premium, occasioning a heavy demand
for gold for remittance to the south. To protect themselves, the banks
restricted their advances, and thus kept down the amounts of their note
issues. There was, consequently, both a severe strain on the banks and
great inconvenience to the general business community. But the
difficulties of the situation were satisfactorily overcome. |
