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ON the first day of the
first year of the last century, the United Kingdom of Great Britain and
Ireland commenced its career as a consolidated constitutional empire.
But, notwithstanding this great step towards peace and civilisation,
there succeeded a period of fifteen years, during which the nation was
engaged in exhaustive warfare with most of the nations of Europe, with
the United States of America, with the native princes of India, and with
the colonies and dependencies of European nations in various parts of
the world. France, Russia, Denmark, Sweden, Spain, Turkey, and the
United States, were all grappled with severally or in combinations. But
this does not indicate the total difficulties of the country. Trade, as
was natural in such circumstances, was depressed and almost paralysed;
Ireland was openly disaffected; great distress existed among the
working-classes; and, in England and Scotland, the corn-laws were made
the occasion of serious and widespread disturbances and riots. Taxation
was oppressive, and yet so insufficient to meet expenditure, that the
national debt was increased to the extent of about £200,000,000. The
French War, lasting practically from 1793 to 1815, is estimated to have
cost Great Britain £1,427,219,964. These events culminated in 1815, when
the power of Napoleon was finally shattered, and the commercial
equilibrium was reestablished after the throes of a crisis which, if not
of the first magnitude, was widespread in its incidence.
The period was not,
however, destitute of important features of a favourable character. If
industry was depressed, the means for its improvement and extension were
considerably developed. Mechanical science continued to advance; so much
so, indeed, that the supercession of manual labour by machinery
occasioned, in the unfavourable state of the country, a bitter
opposition by the working-classes, who imagined that their means of
livelihood were being taken from them, and led to serious outbreaks of
popular fury. In 1812, moreover, steam navigation was inaugurated by the
success of Bell's Comet on the Clyde. Thus, in a period of deepest
gloom, one of the most potent factors in the development of commerce and
the advancement of civilisation, was placed at the service of mankind.
The crisis which closed
the period which may be considered to have commenced about the middle of
1797 appears to have been a gradual one, extending from 1810 for about
five years. It fell with great severity on the English country bankers
—141 provincial banking houses being reported as having succumbed. This
was doubtless due in great measure to the unfortunate state of banking
legislation, which fostered a plurality of small firms, and prohibited
the formation of large joint-stock banks. Scotland did not suffer to the
same extent as England, owing to its comparatively backward condition
giving scope for its industries within its own borders.
As regards banking, this
period was one of much activity. At least sixteen new banks were
started; and the Bank of Scotland and the Royal Bank both obtained power
to increase their capitals to one million and a half. Of the new banks,
which date from 1802, the most important is the Fife Banking Company,
who commenced with a capital of £30,000, and after a career of a quarter
of a century, collapsed in 1829, through mismanagement and dishonesty,
entailing total loss, and liability for £5500 per share, on the
partners. Another bankrupt born in this year was the Renfrew. shire
Banking Company. They managed, however, to pull on for forty years, when
they made a disgraceful failure. The Cupar Banking Company was also
formed in 1802, and is said to have retired from business nine years
later; but the dissolution of copartnership did not take place until
1820. The Falkirk Union Banking Company was another unfortunate venture.
Established in 1803, with a capital of £12,000, held by fourteen
partners, it existed for thirteen years, and was sequestrated on 18th
October 1816. The liabilities were about £60,000. Malachi Malagrowther
cites it as one of the few instances of bank failures in Scotland, and
states that it "paid up its engagements without much loss to its
creditors." Another authority, however, states the deficiency at 10s.
6d. per £. John Wardrop & Co. began business in Edinburgh in or shortly
before this year, and dropped out of sight some twenty years later. At
this time the affairs of the Dundee Commercial Bank having got into
gross disorder, the business was reorganised as the Dundee New Bank, on
14th January 1802, with a capital of £58,000, in shares of £2000 each,
of which one-tenth was paid up. It does not seem to have been a
satisfactory concern during its earlier years. Its business was
purchased by the Dundee Banking Company in 1838. We should also mention
David Paterson of Costerton, who at this time commenced a ten years'
banking career which ended in sequestration; and the Kilmarnock Banking
Company, which was established 10th June 1802.
This rapid extension of
banking naturally occasioned anxiety to the Edinburgh banks, who, in
order to check it, intimated that they would not receive the notes of
any new country banks that might be established. Either as the result of
this opposition, or more probably from the circumstances of the country,
the growth of new banks was somewhat restricted for several years
subsequently. With the exception of a wretched attempt at Dumfries,
where James Grace, with the assistance of his son and another partner,
started the Dumfries Commercial Bank in 1804, only to succumb four years
later with a deficiency of 10s. per £, and of the firm of Belsh & Co.
who commenced business in Stirling, in 1804, but failed two years later,
only two banking houses, and those not of great importance, were
established up till 1809. These were Inglis, Borthwick, Gilchrist & Co.,
in Edinburgh; and the Galloway Banking Co. of Douglas, Napier & Co. The
former firm began business in 1805, and continued for ten years, when,
on the death of Archibald Borthwick, 13th July 1815, it became James
Inglis & Co., who failed in 1834, with liabilities amounting to £23,000.
The Galloway Banking Company, established in the following year at
Castle-Douglas, was a more important firm; but it had a career of only
fifteen years, when it withdrew from business. The banking mania now
broke out afresh. In 1809 the Dundee Union Banking Company and the
Glasgow Banking Company were started. The former, which subsequently
amalgamated with the Western Bank, appears to have been somewhat
energetic in the establishment of branches—for, not content with eight
offices in the immediate neighbourhood of Dundee, it is recorded that
the experiment of a branch in London was made, though without success.
It had a nominal capital of £100,000, of which £60,000 was paid up. It
was absorbed by the Western Bank on 31st March 1844. The Glasgow Bank
was an offshoot of the Dundee New Bank, and started with a fully paid
capital of £100,000. It afterwards joined the Ship Bank as the Glasgow
and Ship Bank, and the conjoined business was, in 1838, merged in that
large collection of banking companies, the Union Bank of Scotland.
The Glasgow Commercial
Bank was established in 1810, but it does not seem ever to have risen
into much notice, and it ceased to do business in 1820. A more
noteworthy production of the same year was the East Lothian Banking
Company, whose head office was at Dunbar. It had a capital of £80,000.
Malachi Malagrowther speaks of it as a company "whose affairs had been
very ill-conducted by a villanous manager." This model banker was
William Borthwick, the cashier, whose career forms quite a romance of
crime. The bank stopped payment in 1822, with liabilities amounting to
£129,191 : 16 : 7, which were subsequently met in full.
The Perth Union Banking
Company was also established in 1810. It amalgamated with the National
Bank of Scotland in 1836. In 1812, the Caithness Banking Company was
formed at Wick. It got into difficulties in 1825, and the business was
taken up by the Commercial Bank. Another provincial bank was the
Montrose Banking Company, established in May 1814, with a capital of
£15,000. It was merged in the Dundee Union Bank in 1829. The private
firm of Thomsons & Co. was established in Edinburgh in 1811, but it is
probable that they may more properly be classed as financial agents than
as bankers.
By far the most important
banking establishment which came into existence at this time was the
Commercial Banking Company of Scotland. It was formed in November 1810,
and was on the joint-stock principle, although not incorporated until
some years later. [For some interesting details regarding the origin of
this bank see Some Edinburgh Shops Josiah Livingstone, Edin. 1894, p. 64
et seq.] It has been remarked that it was the first bank not established
by public authority which assumed the national designation implied in
the addition to its name proper--a practice which has been followed to a
large extent since. It was not long, however, in justifying its adoption
of the designation, for it speedily spread itself over the land with
much spirit and success. Its comparatively large capital—£3,000,000
nominal, divided into 6000 shares of £500 each, of which £2,250,000,
with £450,000 paid up, was issued at first—enabled it to do this with
ease. From the outset, it appears to have been designed on a
large-minded plan, and to have met a decided want. The old chartered
banks were not then, as now, banks of the general public. Their business
was for the most part among capitalists—small, doubtless, as well as
large, but who, as financiers, were distinct from the body of the
people. They occupied, to a considerable extent, a position similar,
though of course on a much smaller scale, to that at present held by the
Bank of England. They did, doubtless, as occasion offered, deal directly
with the general public; but the practice then was, for private
individuals to transact their business with private bankers. The private
Edinburgh firms were each in close—sometimes, as we shall presently see,
too close —connection with one or other of the old banks. This
arrangement had sprung up at a very early period, and had been always
continued. It saved the banks both from danger and from trouble; for the
middlemen managed all the details of small deposits and discounts, and
assisted in extending the circulation; and it paid the private bankers
(who were very like the modern bill discounters), for they exacted
heavier terms from their clients than they were charged by the banks.
The connection between
the Bank of Scotland and the Royal Bank on the one hand, and their
respective sets of banking customers on the other hand, became more and
more intimate, until partners of private banking firms not only got
seats on the bank boards, but actually to a large extent controlled the
proceedings of the latter. Business men then began to find it irksome to
have to pass their business through the strait gate of the private bank,
where toll had to be paid, as the only practical way of obtaining the
benefit of the public banks' accommodation; for they believed, rightly
or wrongly, that the private banker would refuse at the board meeting to
approve of paper which he would readily discount in his own office. It
was one great feature of the Commercial Bank to counteract this state of
matters; and accordingly it was made a rule of their constitution that
no private banker could hold the office of director. This was
practically the death-blow to private banking in Edinburgh; for,
although many firms continued to exist for years afterwards, the system
was ever on the wane. The new establishment was very popular, but it was
also very discreet ; for while it studied the best interests of the
public, it imitated the wisest provisions of the old banks' practice. In
short, the founders of the Commercial Bank evinced an amount of true
wisdom, which, while it produced great advantage to themselves, was at
the same time largely beneficial to the general community. It must not
be supposed, however, that the new bank at once sprang into the position
of a compeer of the old banks. It commenced on a scale much inferior to
their resources, and although it had public favour, it was destitute of
the prestige and influence, and accumulated wealth, which placed the old
banks in those days on a distinctly elevated platform.
Another circumstance
which aided the progress of the Commercial Bank was the practice of
speculating in the Government funds—which in the depressed state of the
country fell to a very low price—indulged in by the old banks. This was
a very safe kind of speculation for persons who could afford to lie out
of their money for an indefinite time; as, with a declaration of peace,
Government securities were sure to rise in value. But the banks were
accused of yielding to the temptation to such an extent as to seriously
neglect their duties towards trade. The Commercial Bank got credit for
devoting due attention to this matter. There is good reason for
believing that the competition of this bank had a good influence in
bringing the old banks into more direct contact with the public, and in
breaking down their rather selfish ideas of aggrandisement. They had
relegated into the hands of private bankers, to an undue extent, those
duties to the community which they were erected for the purpose of
performing, and were devoting their attention mainly to their own
pecuniary interests. From this golden trance they were aroused by the
advent of the Commercial Bank. It may have been partly owing to this
circumstance that the rate of interest on deposit receipts was raised
from 3 per cent to 4 per cent at this time.
The estimation in which
the Commercial Bank was held during its earlier years is amusingly shown
by a paragraph in a tract [Three Letters on the Speculative Schemes of
the Present Times, and the Projected Banks." Anthony Romney. Edinburgh,
1825.] dealing with the joint-stock excitement which culminated in 1825,
in which the writer says: "In our own city [Edinburgh], every one admits
that all the old chartered banks and private banking companies are just
as liberal as any reasonable man could wish, and even the Commercial
stripling, which, like all young folks, should at least not be rash, has
never yet been accused of a close or niggardly spirit. On the contrary,
Firebrass himself told me that he had never heard a single complaint
uttered against that bank, excepting one,---and that was for keeping a
huge mastiff somewhere about their premises, which, with its vehement
nocturnal howlings, broke in upon the balmy slumbers of all the
hypochondriacal nymphs and nervous soot-brokers in the neighbourhood."
Lord Cockburn is even
more complimentary to the new bank, but not so complaisant to the
chartered banks: "The rise of the Commercial Bank marks the growth of
the public mind. . . . No men were more devoid of public spirit, and
even of the proper spirit of their trade, than our old Edinburgh
bankers. Respectable men they were, but without talent, general
knowledge, or any liberal objects, they were the conspicuous sycophants
of existing power. . . . They all combined banking with politics. . . .
A demand for a bank founded on more liberal principles was the natural
result of this state of things. Hence the origin of the Commercial,
professing to be the bank of the citizens." [Memorials of His Own Times,
Edinburgh, 1856, pp. 252-3.]
The relationship which
existed between the chartered banks and the private bankers in Edinburgh
is graphically illustrated by an incident which occurred early in the
year 1816. This was a rupture between the Royal Bank and the private
house of Messrs. Ramsays, Bonars & Co., who had for many years been
their principal auxiliaries (although previously clients of the Bank of
Scotland), two of the partners of the firm being at the time directors
of the bank. It appears from the printed documents which were issued
during the course of the dispute, that the majority of the directors
accused the firm of unadvisedly availing themselves of their long and
intimate connection with the bank to obtain, without proper authority,
large advances. There never was any question as to the sufficiency of
the security, but the irregular manner in which the loans had been
obtained, and a supposition that the firm were endeavouring to increase
their already considerable influence in the direction of the bank's
affairs, were made the basis of an appeal to the proprietors by the
board. In their defence the firm state that " the account current of our
house with the Royal Bank rests on much stronger grounds than the form
of applying for a credit, and obtaining it at any recent date from a
board of directors. It rests on the best understanding and usage of near
half a century, grounded on the close connection of having been of the
greatest mutual advantage to each other for the last thirty-four years.
. . . Mr. Ramsay, the senior partner of our house, ... devoted his whole
attention to the concerns of the Royal Bank, and placed it in a train of
management that has produced greater prosperity than, we believe, ever
attended any chartered company in the same period [1781-1807]—not
excepting even the Bank of England—in proportion to their respective
capitals."
An important point in
connection with this matter is, that the money so obtained was
understood to be employed in purchasing Government stocks at a low
price, with the object of realising them at an enhanced figure. Thus the
money was not used for banking purposes. The directors do not seem to
have disapproved of this practice in itself, but to have considered that
it would have been more advantageous for the bank if the money had been
so invested directly for behoof of the bank. In fact, they considered
that the firm were diverting to themselves a profit which the bank would
have obtained, had they been aware that Messrs. Ramsays, Bonars & Co.
were operating on their account to so large an extent. For they were
fully aware of the profitableness of this style of investment, and
habitually availed themselves of it. It would seem that the firm had
acquired, and held for years, a controlling influence in the direction
which was prejudicial to the independent and safe management of the
bank. One writer on the subject refers to it as "the thraldom under
which the bank has long languished," and points out that the then market
price of the stock - 185 per cent—was much below the figure twenty-eight
years before. [In August 1788, a sum of £3592 : 6 : 8 of Royal Bank
stock was purchased in London by a banker at £209 : 6 : 8 per cent, and
three years later the price was 240 per cent.] This latter circumstance
he attributes to the exercise of the firm's influence in availing
themselves of the use of the bank's funds to an excessive extent; and he
asserted that the previous prosperity of the bank, referred to by
Messrs. Ramsays, Bonars & Co., was principally due to the improved
circumstances of the country.
It is evident that such a
relationship between banks and their customers is fraught with much
danger; but there can be no doubt that the above-narrated incident was
the outcome of a long-established and not intentionally evil system
peculiar to banking in Edinburgh. Its exposure at this time, and the
competition of new joint-stock banks, effected a cure. This result,
however, was attended with the rapid decay of private banking. Indeed,
it was only in Edinburgh that private - banking, pure and simple, was
still in active operation. Of course, all the banking companies, other
than the incorporated banks, were merely partnerships; but, from the
least to the greatest, they were more and more assuming the appearance
and functions of public banks, except in the metropolis.
In closing our review of
this period (1800-15), it may be advisable to refer briefly to some
minor details. Although, as we have already seen, the Bank of Scotland
early essayed the formation of branches, and at the close of last
century had several in operation, it was not until 1804 that it opened
in Glasgow. This is the more extraordinary, as their great rivals, the
Royal Bank, who otherwise abstained entirely from branch extension, had
opened in Glasgow twenty years before. It has, however, been supposed
that a tacit agreement had existed between the two banks, that the
former should have the provinces (excluding Glasgow), and the latter
Glasgow as their respective spheres of influence. To the Bank of
Scotland we are indebted for inaugurating the present system of deposit
receipts in 1810. This movement was doubtless made in contemplation of
the competition of the new joint-stock bank. About this time there were
sixty bank offices in Scotland. Interest was usually allowed at from 3
per cent to 4 per cent, and charged at 5 per cent. The par of exchange
between Edinburgh and London was forty days. In 1813 the British Linen
Company obtained—despite great opposition on the part of the older
banks—a supplementary charter authorising an increase of their capital
from £200,000 to £500,000; but, although they were to all intents
bankers, the legal right to be so considered was still withheld from
them. [It would appear that the practice of granting licenses to issue
notes was commenced at this time. By a Stamp Act passed in 1808 (48 Geo.
III c. 149), every issuing bank was required to take out a license,
costing £20, for its head office and all branches previously established
; while every branch subsequently opened necessitated another license.
By a later Act (55 Geo. III. c. 184,—year 1815), the cost of such
licenses was raised to £30; but banks in Scotland were not required to
take out more than four licenses whatever the number of their branches.]
We may fitly conclude
this chapter by referring to the inauguration of savings banks, which
occurred at this time. The earliest movement in this direction appears
to have been that of the Rev. Joseph Smith at Wendover in England in
1799, and it was followed by the Charitable Bank at Tottenham, both of
which were of primitive character. It is understood that the first
regularly organised savings bank in this country was established by the
Rev. Henry Duncan in his parish of Ruthwell, Dumfriesshire, on 20th May
1810. It was called "The Parish Bank Friendly Society of Ruthwell." The
idea was rapidly taken up in other parts of the country; the first
attempt on an extended basis being made in Edinburgh in 1814; but
details regarding it are wanting. On 19th June of the succeeding year, a
similar establishment, which was styled the Provident Bank, was formed
in Glasgow. The practice of the Scottish banks allowing interest on
deposits materially facilitated the savings banks movement. There has
been much legislation in regard to these banks. The English Act of 1828
was made applicable to Scotland in 1835, when the banks were placed
under the supervision of the National Debt Commissioners. They were
reconstructed as National Security Savings Banks at that time. It is
stated that the Church of St. John's Parish, Edinburgh, was largely
built by a grant from the directors of the Edinburgh Savings Bank of
unclaimed deposits, etc., when its operations ceased through
supercession by the new organisation. More recent legislation, by
extending the amounts of deposits receivable, has largely altered the
character of savings banks; the customers of which now include a large
proportion of the middle classes as well as the working classes. This
point is usually overlooked in discussions on labour economics. Thus was
laid the foundation of a system for improving the condition of the
poorer classes, which has since successfully developed to such an extent
as to supply no small portion of the national resources. |
