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THE state of Scotland at
the close of the seventeenth century—the period at which Scottish
banking commenced—was not favourable to commercial enterprise. Foreign
and domestic wars and tumults had, from time immemorial, drained the
country of its hardiest manhood and of its scanty treasure. Commerce,
except in that minimum proportion which is indispensable to the
distribution of the necessaries of life, had never had opportunity to
establish itself. The nation was sunk in poverty. Even the few large
landowners could only be called wealthy in comparison with the plain
living commonalty, who could with difficulty supply their wants. Even
the officers of the Crown were in the enjoyment of but petty incomes,
which the evil fortunes of the nation frequently interrupted the payment
of. The currency was debased in quality and scarce in quantity. It would
appear that payment in kind was usual in the settlement of rents, and it
is probable that barter in some forms was not uncommon in the more
remote country districts. The history of Scotland as an independent
country is one of almost constant misfortune ; for even the brilliant
victories gained by the Scots over their great enemies, the English,
were but the barriers which averted ruin. They did not, like the
triumphs of the French or of the Spaniards, add new territory to the
State, or increase the wealth of the kingdom. They merely enabled the
unconsolidated community to continue its rude existence in independence
at the cost of chronic penury, intensified by internecine feuds and
periodic coups d'etat. Eventually the nation reaped a rich reward for
the sufferings it had endured in the struggle to preserve its freedom,
for it gained access to boundless fields for the exercise of its
restless energy, achieved large profits for its untiring activity, and
became united into one of the most law-abiding and industrious countries
in the world. At the time when our history begins, however, the clouds
of night were still overshadowing the country; and the sun of
prosperity, destined to shine with undimmed splendour, had not yet risen
on the national horizon.
The Union of the Crowns of England and
Scotland in the year 1603, by the accession of James VI. of Scotland to
the throne of England, put an end to the hereditary warfare waged for
centuries between the kingdoms; but though the wounds were bound up they
were not healed, and international jealousy and dislike still prevented
the full advantage of community of interests. As being the weaker power,
Scotland suffered most in this new phase of its struggle with its
domineering associate, who ever and anon checked its enterprise whenever
it seemed to trench on English prerogatives. It did, however, snatch an
uneasy rest during the forty years which elapsed before the great civil
war between the Commons and the Crown broke out in 1642. In that six
years' struggle, as in all the succeeding troubles, the efforts of
Scotland were generally spent on the losing side. The Scots, indeed,
escaped the brunt of the conflict, but they suffered terribly in the end
by the iron hand of Cromwell, whose power they had well-nigh crushed at
Dunbar, but for the infatuation of their clerical dictators prevailing
over the military skill of their sagacious general, Leslie. Through the
Commonwealth and the restored Monarchy, the country's grievances
continued; and it was not until the peaceful revolution of 1688 placed
the constitution on a firm basis, that there was even the possibility of
prosperity for Scotland; and not until the effects of the legislative
union of the countries in 1707 had had time to develop themselves, that
the nation's spirit was at rest.
With the revolution settlement of domestic
affairs began a new and brighter era in the commercial and financial
history of Britain, which the warlike foreign policy of successive
administrations was not potent enough to neutralise. England drifted
from one quarrel into another, and accumulated a national debt which at
last reached an amount unequalled in the world's experience, until, in
our days, German ambition sought to crush French aggression under the
weight of financial difficulties. While the national exchequer was
empty, and irregular methods were adopted to replenish it,—nay, even as
the immediate consequence of a system of State lotteries and forced
loans,—the foundation of the great fabric of British finance was laid.
That it was laid in such unfavourable circumstances, established on the
erroneous principle of monopoly, and fostered by exclusive privileges,
granted as the price of pecuniary aid to the Crown, has been the source
of woes unnumbered to the banking system of England. But as far as
Scotland was affected by it, the influence of the change of dynasty was
only good. The Highland interest being strongly enlisted in favour of
the Stuarts, did, it is true, assert itself by force of arms; but this
was no new experience, and it was soon overcome. The nation, as
represented by the more consolidated portion of the community, was
enabled to follow the lead in the organisation of a financial system,
and, by reason of its independent constitution, to found it in a free
and untrammelled condition.
It has been a fortunate circumstance for
Scotland that, in borrowing the idea of establishing joint-stock
companies for the advancement of industrial enterprise, the Parliament
of Scotland avoided the temptations yielded to by the Parliament of
England, and did not seek to fill the national coffers at the expense of
the future interests of the nation. Banking in England has been crippled
and enfeebled by the pernicious monopolies granted to, and the onerous
responsibilities imposed upon, its first joint-stock bank; while in
Scotland the banking system has been developed and matured under natural
and unfettered conditions. Thus, south of the Tweed, banking
legislation, in a series of makeshift patches, has produced a
multiplicity of conflicting interests which have to be subjected
periodically to readjustment, in order to preserve even partial
satisfaction among the unequally weighted competitors. In the history of
banking in Scotland, on the other hand, there is comparatively little
trace of unequal legislative treatment — all the banks competing in most
essential points under similar conditions. What unfairness actually
exists is due entirely to the introduction of English ideas, and is
limited, for the most part, to the department of note-issuing, as
regulated by the Act of 1845.
We are not at present discussing the merits
of Sir Robert Peel's measures, but we desire to point out that they
introduced, for the first time, the principles of restriction and
exclusion in Scottish banking legislation. The Scots Parliament of 1695
did, indeed, recognise the principle of monopoly, when establishing the
Bank of Scotland; but it was understood (and the result justified the
supposition) that the exclusive privileges granted to that corporation
were designed merely to give it a fair chance as an entirely new
experiment, and were not to be renewed at the end of the term of
twenty-one years for which they were granted. That this special
encouragement should have been granted was unquestionably wise. It would
have been unfortunate, if, at that early stage, the development of
banking had been checked, through competition in a field where the
probability of success, on the part of even one establishment, was
absolutely uncertain. Had a similar course been pursued in England—had
the exclusive privileges of the Bank of England been withdrawn as soon
as its probation was over, the roll of English bankers would have been a
much less melancholy catalogue than it has proved to be, and the
currency question need never have occasioned the trouble and vexation
which have characterised it up to the present time.
But, unfortunately, the poverty and ambition
of successive Governments made them the creatures of their powerful
creditors, and tempted them into erroneous principles of legislation,
which have produced the most artificial financial system existing in the
world. Through struggles and crises, amendments have been made which
enable the units of the system to hang together—the inevitable jarring
which occurs every few years being temporarily overcome by some special
arrangement, generally involving the creation of one or more new species
of banks. Thus it happens that, at the present time, there are about a
dozen distinct classes of banks in England, each subjected to peculiar
legislative provisions. At the same time, owing to the operation of the
enactments limiting the number of partners in private banks, and
discouraging amalgamations, there has always been an unfortunately large
number of small establishments whose fortunes depend on the prosperity
of particular localities, and the resources of small coteries, instead
of having the broader basis of the general experience of the nation, and
the wealth of large proprietaries. This condition has, however, been
greatly modified during recent years by the numerous amalgamations which
now constitute such great corporations as Lloyds Bank (Limited), Barclay
and Company (Limited), and the London City and Midland Bank (Limited).
The Scottish banks, too, show some
diversities in the legislative conditions under which they exist, for
which they are indebted to English statesmanship. But the national
spirit of Scotland has to a large extent prevailed over attempts to
reduce the uniform and matured system, evolved by wholesome experience,
unfettered by Governmental interference, to the hampered condition of
the English banking system. The inequalities existing—viz, the privilege
of undesignated limitation of liability of stockholders in some of the
banks, and the disproportion in the amounts of authorised issues of
notes among the several establishments—are not such as to interfere with
free competition between the members of Sir Robert Peel's charmed
circle. They are, indeed, recognised as grievances, but the banks are
content to let them lie over. To contrast with the multiplicity of
classes of banks in England, there are three in Scotland—namely,
chartered banks, presumed to be limited in virtue of the character of
their incorporation; chartered banks, formerly unlimited, now limited by
registration under the Companies Act 1879; and banking companies
incorporated and limited under the Companies Acts 1862-80. As the two
latter classes are practically the same, there are really only two
classes of banks in Scotland. Under the provisions of the Companies Acts
1862 to 1879, all essential constitutional distinctions disappear as far
as the Legislature is concerned, and there remains only the partly
sentimental injustice of enforcing on all but the three oldest banks the
addition of the invidious and inelegant word "limited" where, in point
of fact, the distinction is altogether inappropriate.
The first-mentioned class of banks embraces
the Bank of Scotland, the Royal Bank of Scotland, and the British Linen
Company. The second class includes the Commercial Bank of Scotland
(Limited), and the National Bank of Scotland (Limited). The third class
consists of the Town and County Bank (Limited), the Union Bank of
Scotland (Limited), the North of Scotland Bank (Limited), the Clydesdale
Bank (Limited), and the Caledonian Banking Company (Limited). Together
these form the roll of the Scottish banks in the order of their
formation. The Bank of Scotland is established under special Acts of
Parliament; the other two old chartered banks, and the two senior
"limited" banks, are incorporated by Royal Charter; and the five
youngest banks are enrolled under the Companies Acts of 1862-80. All of
them exercise the power of issuing Hates, and carry on business in all
the departments usually included by British economists under the term
banking. These
operations may be classified broadly into borrowing, lending, and
investment. The companies obtain money from their own members to form
the capital and other private funds of the corporation, and from the
public under notes payable to bearer on demand, deposit receipts,
current accounts, letters of credit (now generally called drafts), for
the remittance of money between various localities in the United Kingdom
and abroad, and circular notes for the use of travellers abroad. The
money thus obtained is lent on the security of bills at a currency
(usually three to six months after date), cash accounts, overdrafts,
heritable and personal bonds and other securities, to mercantile firms
and other customers. It is understood that advances by bankers should be
on tangible and readily convertible security. In this connection it
should, perhaps, be noted that advances are now largely made on what are
termed fixed loans —that is loans, usually of round sums and for fixed
periods, such as the bi-monthly stock exchange accounts, or one, two, or
three months — on the assignation of approved marketable securities,
with a margin of 20 or 30 per cent to be maintained between the amount
of the loan and the value of the securities at the current market
quotations. In all cases the banks retain, however, their right to call
up advances when they consider it advisable to do so. The acceptance of
bills on account of customers has become an important part of banking
business. A large proportion of the funds is held in reserve as cash,
investments in first-class Government and other stocks, short loans to
financial houses, and bills of exchange of the most approved
description. To the
efficient carrying on of their business, and establishing themselves on
broad bases, the Scottish banks have spread their branches over Scotland
so thoroughly that there is no district, with an appreciable nucleus of
population, unprovided for. All the large banks have, moreover, opened
offices in London, and the Clydesdale Bank has, in addition, a few
branches in the north of England. Thus, although there are only ten
distinct banking establishments having their headquarters in Scotland,
there are nearly 1100 bank offices. The amount of capital administered
by the banks is more than £138,000,000, of which about £17,500,000
consist of the private funds of proprietors, £107,000,000 of deposits,
and £8,000,000 of bank notes, the balance of £5,500,000 being
represented by acceptances and drafts. There are 24,000 partners, and
probably 500,000 depositors, of whom more than three-fourths appear to
be deposit-receipt holders. While, as among themselves, the banks carry
on a very active competition, their dealings with the public are
regulated by tariffs drawn up in concert, and adjusted from time to time
by mutual consent. Thus, as regards rates of interest, discount, and
commission, there is practical uniformity throughout the country—the
discretionary powers in these matters being of small extent. As far as
terms are concerned, therefore, customers have no inducement to favour
one establishment more than another. Of the ten existing banks, five
have their head offices in Edinburgh, two in Glasgow, two in Aberdeen,
and one in Inverness. The Edinburgh banks were all established before
any of the others, and transact 69¾ per cent of the entire banking
business in Scotland. The Glasgow banks conduct 22¾ per cent, and the
provincial banks 7½ per cent of the business.
This, then, is roughly the position of
banking in Scotland at the present time. It is indeed a mighty edifice,
built up (as the sequel will show) from a very small beginning by
shrewdness, economy, and industry during the last two hundred and six
years. The history of banking in Scotland is most intimately associated
with the national progress from poverty to wealth; and the
characteristics of the system of banking which have been developed are
in many points unique, and marked by the peculiar circumstances which
have moulded the Scottish character. The result of the experiment so
modestly attempted in 1695 has, despite many and grievous failures, and
at least one deeper stain than the financial community of any other
nation has cause to blush for, been a great success. In treating of
English banking, if we have represented it historically in an inferior
light, we do not mean to gloss over or extenuate the weaknesses
displayed, especially during last century, by Scottish bankers, nor to
deny the glory due to their southern brethren for the magnificent
financial fabric they have reared under conditions which, if
commercially superior, have been legislatively inferior. And in regard
to scientific exposition and research, Scottish bankers cannot bear
comparison with the financiers of England. English banking, following
the commercial prosperity of the country, has become the most widely
extended in its range, and the most voluminous in the amount of its
transactions, of the banking systems of the world. But Scottish banking
has this -peculiar glory, that it has been in large measure the means of
producing and securing the prosperity of the country, which has in turn
expanded it to the proportions we have described.
In making such a comparison, it must,
however, be borne in mind that the political and commercial positions of
England and Scotland have always been widely different ; and that, of
course, as a matter of cosmopolitan importance, the state of English
banking is of much greater moment than that of Scottish banking. At the
same time, the history and operations of the Scottish banks have not
only great interest for the people of Scotland, but vitally affect the
welfare of the empire and of the world. In the words of an able writer
on Scottish banking, "The banking question, whether discussed in London
or Paris, always reverts to the history of the Scotch banks as a
fragment indispensable to the controversy." [The Scotch Banks and System
of Issue, Robert Somers, Edinburgh, 1873, p. 71.] Their operations have
been so admirably adapted to the requirements of the country, and have
so effectively led its agriculture, manufactures, commerce, and every
branch of industry to a high state of prosperity, without special
devotion — as is usual in other countries—to particular departments of
business, that they are universally looked to as efficient exponents of
practical banking.
The existing banks are all public joint-stock corporations. For about
sixty years there has been no private banking firm in Scotland, among
the last being the famous house of Sir William Forbes, J. Hunter & Co.,
who amalgamated in 1838 with the Glasgow Union Bank, afterwards the
Union Bank of Scotland, although their firm-name continued to be used
for a few years in connection with the Edinburgh business of the bank.
The less conspicuous house of Alexander Allan & Co. appeared in the
Edinburgh directories as bankers for about twenty years later; but it
would seem that for some time previous they had practically ceased the
active conduct of banking business. With this exception, the last
private banking firm extant in Scotland was Dunlop, Houston, Gemmell, &
Co., who carried on business as the Greenock Banking Co. until 1843,
when they amalgamated with the Western Bank of Scotland. Shortly before
these events, a shock had been given to the system of private banking by
the failure of several firms, and the withdrawal from business, on
account of losses, of the important firm of Ramsays, Bonars, & Co.
Private banking has, however, been a very
important element in the history of Scottish banking, at least one-half
of the establishments formed in the country having been on that
principle, while several others, although nominally joint-stock, may for
most purposes be included in the category. Considerable, and in some
cases large, fortunes were made by private bankers, but their ultimate
success does not seem to have been great, as only about half-a-dozen
reached the stage of amalgamation, the others being either sequestrated
or wound up. In all, there appear to have been at least ninety-five
distinct banking establishments formed in Scotland up to the year 1845.
Since then no new bank has been formed. [The Scottish Banking Company
(Limited) was formed at Dundee about twenty years ago, but as its
affairs were not made public, it cannot with certainty be included among
the banks in Scotland. It was wound up a few years later, after an
inglorious career.] Of that list, thirty-six failed and were wound up,
ten passed out of existence from unexplained reasons —in all probability
for the most part insolvency—six retired voluntarily, thirty-three
amalgamated with other banks, and ten remain in business. [The North
British Bank, an exchange company, and not a bank, was sometimes
included in the published lists of the banks in Scotland. See post.
chap. xx.] It will
thus be seen that the narration on which we are about to enter is by no
means unchequered by sad vicissitudes. Indeed, the operations of the
Scottish banks have been attended by a large amount of mismanagement and
recklessness, and have produced a full proportion of bankruptcies,
entailing ruin on partners, and sometimes loss to creditors. It is but
justice, however, to add, that the cases where creditors have suffered
severely are comparatively few in number, and are confined entirely to
the smaller class of offices. The total amount of the deficits is in but
trifling ratio to the aggregate liabilities of the banks. |
