Scottish Banking

IN 1695 William Paterson, born in 1658 in the parish of Tinwald, Dumfriesshire, established the first bank which ever existed in Scotland. It was known by the name of the Bank of Scotland. The capital was fixed at £100,000 sterling, but of this sum only £30,000 was subscribed, and such was the poverty of the country, that even of that small sum the larger portion came from London, Holland, and Hamburg.

William Paterson had previously organized the Bank of England, which had occupied his thought for many years, and which was incorporated by royal charter, July 27, 1694; but for his share in establishing it, so far as I can ascertain, he never seems to have received any pecuniary reward; and, strange to say, from that day to this, no Scotsman has ever been allowed bv our “auncient enemies of England” to be governor of the Bank of England, although Scotsmen are not by law excluded from its direction, as Jews and Quakers are. The nearest approach to having a Scotsman as governor was about thirty-five years ago, when Sir John Rae Reid, of Reid, Irving & Co., the son of a Scotsman, but born in England, attained, if I remember rightly, that high financial position.

About the same time that the Bank of Scotland was established. William Paterson was actively engaged in promoting his scheme for the colonization of the Isthmus of Darien, and such an enterprise had far greater charms for the " perfervidum ingenium Scotorum ” than the sober pursuits of banking; for while £30,000 could not be raised in Scotland to carry on the Bank of Scotland, £400,000 sterling were Subscribed for the Darien expedition! The consequence was that much of the little capital of Scotland was lost in that disastrous affair; and banking facilities seem to have been little understood or appreciated for very many years afterwards. This is little to be wondered at if we consider the condition of Scotland during the last ten years of the seventeenth century, as portrayed by that famous Scottish patriot, Andrew Fletcher of Saltouu, in 1698: “ There are,” says he, “ at this day in Scotland 200,000 people begging from door to door; these are not only no ways advantageous, but a very grievous burden to so poor a country, and though the number of them be perhaps double what it was formerly, by reason of the present great distress, yet in all times there have been about 100,000 of these vagabonds, who have lived without any regard or submission either to the laws of the land or those of God and nature. They are not only a most unspeakable oppression to poor tenants (who, if they give not bread or some sort of provision to perhaps forty such villains in one day, are sure to be insulted by them), but they rob many poor people who live in houses distant from any neighborhood. In years of plenty many thousands of them meet together in the mountains, where they feast and riot for many days, and at country weddings, markets, burials, and other like public occasions, they are to be seen, both men and women, perpetually drunk, cursing, blaspheming, and fighting together. ” It is only fair to the Scottish people to say that the demoralization described by Fletcher was in a very great measure, if not solely, owing to the anarchy and confusion caused by the religious persecutions under Charles II. and James II., from 1661 to 1688, and the unsettled state of politics in Scotland, after the accession of William III. to the English throne, while it was as yet undetermined whether or not the Scottish Parliament would accept him as King of Scotland.

The total population of Scotland at this time was probably not over 950,000. It was estimated at 1,050,000 in 1707, at the union with England, only about 250,000 in excess of that of the city of London; and down to the present day the whole population of Scotland bears much the same proportion to the population of that metropolis. In the midst of a population of about 950,000,—• 200,000 of which was of the character described by Fletcher of Saltoun, — the peaceful pursuits of commerce and finance could have little place.

In 1707 the union of Scotland with England was consummated, and as an equivalent for various losses sustained by Scotland, especially by Paterson’s Darien scheme, and probably by way of smoothing matters with the recalcitrant Scots, the union commissioners recommended that £308,085 10s. sterling (the balance of a long debtor and creditor account between the two kingdoms) should be paid in cash to the Scottish exchequer. This was a large sum to be received by the poorer country, though hardly equal to what it lost by the Darien expedition alone, and it appears to have had but small effect in bettering the condition of the people, who were still to suffer from the political disturbances caused by the rebellions in favor of the Stuarts, of 1715 and 1745, before they finally settled down into quiescence.

It was not until some four or five years after the suppression of the latter rebellion, that Scottish agriculture and commerce took that start which has resulted in the magnificent development of both which we behold to-day.

Meanwhile, in 1727, the Royal Bank of Scotland had been established, which was followed in 1746 by the British Linen Co. Bank. The Bank of Scotland, established in 1695 by Paterson, was carried on under a special act of the Scottish Parliament; the Royal Bank and the British Linen Co. were chartered banks: and it was believed that in all three the shareholders were only liable for the amount of their shares. With regard to the last two this is now deemed to be a mistake, and the shareholders are presumed to be personally liable to the extent of their whole fortunes, and it is matter of doubt whether the shareholders of the Bank of Scotland are not so also.

It was as late as 1750 that private banks began to be established in Scotland, and before giving some details regarding them, it may be well to note the remarkable difference between the mercantile classes of Scotland and those of England. The former sprung from the younger sons of lairds or landed gentry, the latter worked their way up from the laborers and yeomanry. The Glasgow merchants trading to Virginia and the West Indies, up to the close of the last century, used to appear upon Change in scarlet cloaks, as indicative of their aristocratic position; and the family of the Dunlops of Carmyle, near Glasgow, had a whole collection of these scarlet cloaks worn by their ancestors, which having been stowed away for more than half a century were brought forth from their hiding-place and cut up into hoods and under-garments for the Scottish soldiers in leaguer before Sebastopol in the dreadful winter of 1855-56.

From the time of the establishment of the Bank of England, a banking firm in England could not consist of more than six partners, and could only issue notes outside of the London district. There was no such restriction as to the number of banking partners in Scotland, and there a registry office for the registration of sales, tranfers, and mortgages of land existed, while in England there was nothing of the sort. Therefore in Scotland, if the landed gentry became partners of a bank, any change in their holdings was at once known by an inspection of the books of the registry office; no such clew was afforded to the condition of the affairs of bankers in England.

The Scottish bankers, from the very origin of banking in their country, held a high social position; they were men of “ mark and likelihood.” When Andrew Drummond of Macheany, — an uncle of Viscount Strathallan, and a kinsman of the Duke of Perth, who after 1715 established the great banking-house of Drummonds, 49 Charing Cross, London, as it was surmised with a view to forwarding the interests of the exiled Stuarts, — was upbraided by some of his aristocratic kinsmen for engaging in trade, he replied, “ A gentleman may be a banker, though it by no means follows that every banker is a gentleman.” Fifty or sixty years after his days, it was almost held as an axiom in Scotland that every banker was, ex officio, a gentleman. Within my own recollection, bankers in Scotland were looked upon as a sort of demi-gods, only to be approached with “ bated breath and whispering humbleness; " but with all this there was a very kindly feeling between them and their customers, and there was a thorough appreciation, on the side of both, of the great principle expressed in the modern formula of “ mutuality of service.” The sphere of action of the various banks was comparatively limited, and the banker was thoroughly acquainted with the business and social habits of bis customers.

The origin of private banks in Scotland was nearly coincident with the purchase by the government of the “hereditary jurisdictions,” after the suppression of the rebellion of 1745. In exchange for these high but invidious privileges, which had cast a blight over the whole country, the sum of about £150,000 sterling was awarded to the Scottish lairds and Highland chiefs holding these privileges in 1748, and so the hereditary jurisdictions, hitherto instruments of oppression and extortion when represented by money, were turned into blessings in promoting the growth of agriculture, commerce, and manufactures. Of the £150,000 mentioned above, £21,000 were awarded to the Duke of Argyll, £6621 to the Duke of Queensberry, down to the smallest sum of £65 19s. 9d. to Sir James Lockhart for the regality of Carstairs. This money was a perfect godsend to Scotland, wasted as it was by the war of the rebellion, and as it was derived directly from the result of that rebellion, Scotland may be said literally, out of the nettle danger to have plucked the flower safety.

What those hereditary jurisdictions had been, it may be well to explain. The holders of them had the power of “heading and hanging” within their respective domains, but the Scottish lairds and Highland chiefs who possessed them had long anticipated Jeremy Bentham’s apothegm that “ The worst use you can put a man to is to hang him.” Burton says in his History of Scotland from 1698 to 1748: “ The authority of the lairds did not enable them to transport convicts, but when the gallows was in the background, they had little difficulty in persuading those who came under their wrath that it would he well not to be clamorous, but submit at once to the alternative of entering as apprentices in one of the American plantations. Some of these potentates increased their scanty incomes by prudently turning their judicial powers in this profitable direction. It is the natural effect of such powers as those involved in the hereditary jurisdiction that they exercise a tyrannical influence beyond their strictly legal bounds.” Hence, besides convicts exiled as stated above, there was a regular trade in kidnapping carried on in Scotland, during the first half of the eighteenth century, and small as was the commerce of Scotland at that time, it was deeply stained with this criminal traffic during the period before the rebellion of 1745.

So little demand, however, was there for banking accommodation by the merchants of the commercial metropolis of Scotland in the last part of the seventeenth and earlier portion of the eighteenth century, that the Bank of Scotland, which attempted to establish a branch in Glasgow in 1696, had to withdraw it the following year for want of business; they tried it again in 1731, and again abandoned it in 1733 from the same cause, and for seventeen years afterwards Glasgow had no bank whatever.

In 1750 a few wealthy men determined to establish a private bank in that city, and in the early part of the year the Ship Bank was opened; the partners were Colin Dunlop of Carmyle; James Dennistoun of Dennistoun; Alexander Houston of Jordanhill; William MaeDowell of Castlesemple; George Oswald of Scotston; and James Simson, merchant; all but the last, it will be seen, lairds or landed proprietors. This was followed at the end of the same year by the establishment of the Glasgow Arms Bank, and about the same time was established in Edinburgh the private bank of Sir William Forbes & Co. The founder was a man of ancient lineage, but owing to the forfeitures for the rebellion of 1745, his family was reduced to very narrow circumstances. His father died when he was very young, predeceasing the grandfather of Sir William Forbes, and therefore never succeeding to the baronetcy. Sir William was brought up in a very thrifty manner by his mother, who, however, educated him well, and gave him literary tastes, so that after he had achieved fame and fortune as a banker he wrote a Life of Dr. Beattie, the author of The Minstrel, a poem in some repute eighty or ninety years ago. It is of him that Sir Walter Scott writes in the introduction to the fourth canto of Marmion: —

which I take the opportunity of quoting to show that the Scottish name Forbes should be pronounced as a dissyllable, instead of as a monosyllable, as it always erroneously is in England and America. It was the second Sir William Forbes, successor of his father in the management of the bank, who married Miss Belsher-Stewart of Fettercairn, the first love of Sir Walter Scott, a match which did nut interfere with the warm friendship of the gentlemen. The youngest son of this marriage, James David Forbes, was the contestant with Agassiz for the honor of first discovering the glacier theory.

The Scottish banking system may, then, be said to have fairly taken root in 1750. Before that time it was a very sickly plant, showing hardly any vitality, but afterwards “grew, and waxed a great tree, and the fowls of the air lodged in the branches of it.” Private banks gradually increased in Glasgow, Paisley, Ayr, and Greenock on the west side of Scotland, and in Edinburgh. Dundee, and Aberdeen on the east side.

The last private bank established in Glasgow, and I believe in Scotland, was the Glasgow Bank, established in May, 1809, by my grandfather, the late James Dennistoun of Golfhill. Besides himself the partners were sixteen in number: namely, the Right Honorable Lord Kinnaird, the elder brother of Byron’s friend, Douglas Kinnaird,—who by the way always pronounced the poet’s name as we should the Irish name of Byrne; John Ten neat, Peter Macadam, Robert Blair, Robert Brown, William Taylor, all merchants in Glasgow; W. B. Cab bell, Samuel Nicholson, Thomas Hayden, William Morland, and Henry Boase, merchants in London; Walter Fergus, merchant in Kirkcaldy; John Baxter and William Roberts, merchants in Dundee; Alexander McGregor, merchant, Liverpool; and John Grundy, Jr., woolen manufacturer, Bury, Lancashire.

It is worthy of remark that the partnership is nearly all of mercantile men, instead of being nearly all of landed proprietors, as that of the first private bank established in Glasgow was, fiftynine years before. The Glasgow Bank maintained a very high character under the management of Mr. Dennistoun until he retired from business in 1829, On that occasion (December 2, 1829) a great public dinner was given to him at the opening of the Glasgow Royal Exchange, by the magistrates and his fellow-citizens, in testimony of their respect for him, not only as a banker, but as a man of most liberal political views and principles. He was offered a baronetcy by Lord Grey’s government in 1832, which he declined, a very unusual thing for a Scotsman to do. The Glasgow Bank became finally one of the numerous private banks merged in the Union Bank of Scotland.

The basis of all Scottish banking, from its real commencement with the establishment of private banks in 1750, seems to have been: —

1st. The receiving and keeping of one person’s money at one rate of interest, and the lending of it to another person at a higher rate of interest, generally at a difference of two or two and one half per cent, per annum, the capital of the bank, and the unlimited liability of the partners, forming a reserve against bad debts.

2d. The issuing of notes payable on demand and the keeping of the same in circulation as long as possible.

3d. The keeping very considerable reserves in London, invested in such a manner as to enable the banker, at a moment’s notice, to meet any demands which may he made upon him.

There appears to have been no particular proportion kept between the reserve and the liabilities, that being a matter regulated by the prudence of the partners of the individual banks.

Up to 1845 notes of £l and upwards were issued by the various Scottish banks without any apparent rule as to the proportion between the issue and the sum reserved for the redemption of the notes, but any overissue by an individual bank was efficiently checked by the clearance in Edinburgh, twice a week, of each bank with every other bank. So that if any bank were too eager to get out its notes, they were speedily returned to it by its competitors, and the excess over what it held of the notes of other banks had to be settled by exchequer bills payable in London.

Scotsmen always have had a most infantile and perfect trust in the notes of their own banks, with little or no consideration as to the standing of the issuing banks. A “ note ” with them was a convertible term for £l sterling, and it could not have been held in greater respect had it been a golden sovereign. In fact, of the two, the note by ninety-nine resident Scotsmen out of one hundred would have been preferred, and this was the case all over Scotland; and even as far south as York, Scottish bank-notes were circulated before 1844.

The Scottish demand bank-notes were always legally convertible into coin, except during the suspension of specie payments by the Bank of England for the twenty-four years from 1797 till 1811; but I well recollect that if any English bagman, who had come down to Scotland to collect accounts for his masters in England, wished to convert the notes he received into gold, to carry with him to England, the look of the paying teller to whom he made the unusual and unwelcome proposition was much the same as that with which he would have regarded a highwayman who had bidden him, with a pistol at his head, “ Stand and deliver! ”

In 1761, when silver change became extremely scarce, as it continued to be for sixty years afterwards, the Glasgow banks for a time issued ten-shilling notes on demand, but temporarily made their £l and £5 notes payable “ either on demand, or six months after presentation, at the option of the bank, with six months’ interest.” After some time the Edinburgh banks, which had a great jealousy of the Glasgow banks, had sufficient influence with the government of the day to have an Act of Parliament passed prohibiting the optional clause in the Glasgow bank-notes.

Guinea notes were originally issued by the Ship Bank of Glasgow about 1780, with a view of meeting, to some extent, the difficulty of procuring silver change. Thus, if a person owed £20 18s. sterling, he gave his creditor eighteen guinea notes and two £l notes, and never a sixpence of silver passed between them.

To show the great scarcity of silver at the period referred to, and the dislike of the wealthy Glasgow banks to be called upon even for the smallest sums of specie, the following anecdote will suffice. A little boy was sent out by his mother to get change for a £l note, and having in vain tried to change it at their own baker’s and grocer’s and at various other shops, he went and presented it at the Ship Bank, by which it was issued, and requested change. “ What’s your name, sir?” asked the teller. Being told, his next question was, “ Who is your master? ” The boy replied he had none. “ Who told you to come here, then?” said the persistent inquisitor. “ My mother,” replied the boy. The teller then gave a “ Humph! ” and sullenly doled out the necessary change. When silver was demanded for a guinea note, a gold guinea was frequently handed to the owner of the note, the teller well knowing that the gold was not wanted, being really less easily converted into silver change than the note itself. The Glasgow branch of the Royal Bank in those days absolutely refused to cash the mother bank’s notes in silver, except to its own customers, and referred strangers, asking for change of these notes, to the head office in Edinburgh where the notes were issued and domiciled.

The ten-shilling bank-notes had gone out of existence long before my day, but I do very well remember that after I had finished my college course and entered the office of my father’s firm, James and Alexander Dunnistoun of Glasgow, in 1827, the payments for cotton sold by the house were not made by checks on the bank in favor of the sellers of the produce, which was in those days a thing unknown, the banks expecting that their customers would draw out notes by checks in their own favor, and pay these notes to those to whom they owed money; and the notes so paid were not of the £5 denomination, which were unlikely to circulate long, but consisted of huge bundles of greasy onepound and one-guinea notes which might be paid out to laborers and others, and remain in circulation.

A peculiar feature of Scottish banking is the granting of what are called “cash credits” to small farmers and manufacturers. These cash credits are not generally for large amounts, the majority of them probably for sums not over £1000 sterling; their aggregate, however, may amount to a very considerable sum. They are granted upon the security of the person receiving the credit, and also of two other persons whose circumstances are well known to the bank, and who produce, before such cash credit can he granted, evidence of their sufficiency as guarantors. On this particular sort of banking business, there has been, it is understood, very little loss to the banks, and in the earlier stages of Scottish agriculture and manufacture the system no doubt tended greatly to develop both. In advancing money to farmers on cash credits, the Scottish bankers had the great advantage over their English rivals, that in Scotland farm leases ran from nineteen to twenty-one years, whereas in England the farmers were mostly tenants at will. In a small country such as Scotland, the circumstances of persons in trade were and are pretty generally known to bankers, and the applications for cash credits are granted or refused generally upon the personal knowledge of the bankers of the entire sufficiency of the sureties.

In order to obtain a wide circulation for their notes, and in districts whence they would not speedily return, the Scottish banks often purchased landed property in distant counties, and also advanced money to needy lairds on mortgage. Neither, scientifically considered, was a good bankable security, but they answered the purpose in the infancy and youth of Scottish banking. The owner or mortgagee owner of land at once had a standing and credit in the neighborhood of the property so held, and the notes of the bank for wages, etc., were easily paid out, and kept out, in those days when railways were not, and even stage-coaches were of rare occurrence out of the line of the great roads between Glasgow, Edinburgh, and London.

Another mode of circulating notes was by getting the Highland drovers to use them in their journeys with cattle from the Highlands to England. Robin Carrick, as he was familiarly called, who managed the Ship Bank with great profit, to himself and his partners for forty-six years, from 1775 till 1821, — and whom I well recollect, when I was a boy, being pointed out to me as a very wealthy and very miserly man, in his shabby carriage, with its scarecrow driver and wretched horses, — cultivated the acquaintance of the Highland drovers with considerable assiduity, for the purpose of passing his bank-notes through their agency. The following anecdote illustrates the keen dealing of both banker and drover, the former, with all his eagerness to circulate his notes in the remote regions of the Highlands, being equally determined not to abate one jot of his rights as a discounting hanker. A drover came into Mr. Carrick’s private room, and presenting a bill which wanted three days of maturity, asked the cash for it. Carrick readily agreed to discount the bill, and remarked that there was sixpence discount to be taken off.

“ Na, na!” said the Highlandman, “ she maun hae a’ t’e siller.”

“ I can’t do that,” replied Carrick, “ the discount must be deducted.” He handed back the bill to its owner, put on his spectacles, resumed his pen, and commenced writing. The Highlander, getting outside the door, kept it a little ajar, and popping in his head said, —

“She’ll gie’t for a groat” (fourpence).

“ No, no! ” replied Carrick, “ it must be sixpence.”

“ Weel, weell" cried the drover, “if it maun be sae, it maum be sae.” So the sixpence was deducted, and the balance handed to the drover in notes and change.

It may be said, I think, with great truth, that the infancy and youth of Scottish agriculture and manufactures were nourished and cherished chiefly by the private banks. The manhood of these industries is sustained by joint stock banks alone, there not having been a private bank of issue in Scotland for upwards of a quarter of a century; all have been absorbed by the joint stock banks.

The Commercial Bank of Scotland was established in Edinburgh in 1810, and the National Bank of Scotland in 1825, both joint stock banks; and even remote Aberdeen, as early as 1825, established a joint stock bank, under the name of the Aberdeen Town and County Bank; but it was not until 1830 that the usually enterprising and energetic merchants of Glasgow established their first joint stock banking institution, under the name of the Union Bank of Glasgow. Its establishment was soon followed by that of the Western Bank and others, but I will only trace the process of absorption by the Union Bank of various private banks, and thus show the course of all the other joint stock banks, in reference to the private ones.

The Glasgow Bank, already referred to as established in 1809, and the last private bank opened in Scotland, absorbed in 1836 the Ship Bank, the first private bank, established in 1750, and the name of the two associated banks became thenceforth the Glasgow and Ship Bank.

The Union Bank of Glasgow assumed the name of the Union Bank of Scotland, and under that designation absorbed in the order named, the following private banks: —

1st. The Thistle Bank of Glasgow.

2d. The Paisley Union Bank of Paisley.

3d. Sir William Forbes & Co. of Edinburgh.

4th. Hunter & Co. of Ayr.

5th. The Glasgow and Ship Bank of Glasgow,

6th. The Old Bank of Aberdeen.

In 1826 Sir Robert Peel had attempted to put an end to the Scottish bank-note circulation, and substitute for it Bank of England notes, without any notes of a lower denomination than £5, while the currency of Scotland consisted almost entirely of £l notes. The Scots felt, greatly disgusted at the proposed change, as they were perfectly satisfied with their own bank-note system, had asked for no change, and wanted none. Their national pride was also roused, feeling, as they did, that their whole monetary system was to be upset by an English statesman, apparently for no other reason but that the Scottish systen might be made uniform with that of England.

The national feeling found a fitting mouth-piece in that greatest of Scotsmen, Sir Walter Scott, who, under the nom de plume of Malachi Malagrowther, in the pages of the Edinburgh Weekly Journal, with mingled invective, sarcasm, and wit, put an entire stop to Peel’s project of uniformity.

After this, Scottish banking was let severely alone for eighteen years, that is, until after Peel’s Bill of 1844, regulating the management of the Bank of England, had become law. It was then determined that as the note circulation could not be assimilated with that of England, the law regarding it should he so altered as to give it a tendency in the same direction. The note circulation, therefore, of each bank of issue, as in 1844, was ascertained, and to that amount each bank was restricted in future, excepting that beyond that authorized amount any one of the existing banks might issue as many notes as it could circulate upon a gold basis; that is to say, for every £l of notes issued beyond the authorized amount, it must have a sovereign in its coffers; but the £l note circulation, thanks to Sir Walter’s efforts in 1826, was not otherwise interfered with. No new bank of issue was allowed to be established in Scotland after 1844.

The Scottish banks are now all joint stock and of unlimited liability, that is, the shareholders, beyond losing the money paid for their shares, in case of failure of the bank, are liable to the utmost penny of their property, present and future, to both note-holders and depositors. From this category of unlimited liability it is possible that the Bank of Scotland may be an exception, as previously stated.

The present bank-note circulation and entire banking business of Scotland is provided for by the following eleven joint stock banks, their branches and sub-branches, as shown by the following tables, made up to December 31, 1873:

Name of InstiNo. of Part of Paid up Bank. tuted. ners. Branches. Capital.

Bank of Scotland, 1695 1405 76 £1,000,000

Royal Bank, 1727 1412 101 2,000,000

British Linen Co., 1746 1203 61 1,000,000

Commercial Bank, 1810 1170 94 1,000,000

National Bank of Scotland, 1825 1602 86 1,000,000

Aberdeen Town and County Bank, 1825 823 40 252,000

Union Bank of Scotland, 1830 1215 116 1,000,000

North of Scotland Bank, 1836 1407 44 320,000

Clydesdale Bank, 1833 1378 76 900,000

Caledonian Bank, 1838 786 20 125,000

City of Glasgow Bank, 1839 1234 122 1,000,000

Paid up Banking Capital of Scotland, £9,597,000

The authorized and actual circulation of notes, with the reserve of coin held by the foregoing banks, as made up on December 31, 1873, was as follows: —

Name of Bank. Authorized Circulation of 1845. Actual Average of Circulation of 1872-1873. Average Coin Held of 1845. 1872-73.

Bank of Scotland, £343,418 £644,187 £394,956

Royal Bank, 216,451 684,431 590,606

British Linen Co., 438,024 539,262 214,718

Commercial Bank, 374,880 727,994 466,198

National Bank of Scotland, 297,024 551,885 386,131

Aberdeen Town and County Bank, 70,133 179,299 137,077

Union Bank of Scotland, 454,346 761,112 432,255

North of Scotland 154,319 286,102 162,668

Clydesdale Bank, 274,321 516,485 319,675

Caledonian Bank, 53,434 94,804 63,069

City of Glasgow Bank, 72,921 611,445 617,879 ¹ £2,749,271 £5,597,006 £3,785,832

The deposits in the Scottish banks, as given in evidence before the parliamentary committee on the bank acts in 1858, were estimated at £50,000,000 sterling, and I think it will be pretty safe to add a million per annum since that date. If this supposition be correct, it would make the deposits in the Scottish banks at present in the neighborhood of £66,000,000, which I apprehend is not far from the truth. The circulation of these notes is now a far less profitable operation to the Scottish banks than it was thirty or forty years ago. Scotland has become so permeated by railways that notes are very speedily returned to the issuing bank. The poorer classes no longer hoard notes, but at once deposit them in savings-banks or with the ordinary banks and their numerous branches, where the smallest depositors are allowed exactly the same rate of interest as the largest depositors.

Prior to the panic of 1857, when there happened to be a run on any Scottish bank, its note-holders were quite satisfied if they got them exchanged for notes of other undoubted banks; but in 1857 there was a decided run for gold, which had to be met by bringing gold from the coffers of the Rank of England. This gold was obtained by the Scottish banks selling securities in London (such as consols, exchequer bills, and London bills of exchange), which were of course paid for in Bank of England notes, convertible into gold on demand. The Rank of England complained of this extra demand for gold from the Scottish banks, and the latter proposed that in future Bank of England notes should be made a legal tender in Scotland from all parties but the Bank of England itself, as well as in England, so as to obviate the necessity for bringing gold to Scotland. To this, however, the Bank of England was opposed, although it is difficult to see how it would have been placed in any worse position by the arrangement, which apparently would, to some extent, at least, have relieved it from a drain of gold in times of panic. Of the gold brought to Glasgow from London in the worst week of the panic of 1857, about a third was sent back to London the following week.

I think it not improbable that with its increased and increasing wealth, Scotland, before the end of this century, will have no notes below £5, its £l notes being superseded by sovereigns, and then will follow the substitution of Bank of England notes for its remaining paper currency. The note circulation of the whole of Great Britain will then be uniform, and Sir Robert Peel’s fond dream of 1826 be fully realized.

The highest dividend paid by any of the joint stock Scottish banks in 1873 was fifteen per cent. per annum by the Union Bank of Scotland, and the lowest nine percent, per annum by the Royal Bank; the others paid from ten to fourteen per cent, per annum. In general terms the dividends paid by the Scottish banks hardly exceed four per cent, per annum on the existing market value of their shares, or only about one per cent, per annum more than consols, and I believe the Scottish people have quite as much confidence in the one security as in the other. They have always had a stout faith in their banks, bankers, and bank-notes, and they have hitherto had good reason for the faith that is in them.

In 1873 the minimum rate of discount charged by the Scottish banks on three months’ local bills ranged from three and one half per cent. on August 22d, to nine per cent, on November 8th, and beginning at five per cent, in January, it closed at the same rate in December. The Scottish banks charge about one half per cent. per annum less discount on bills domiciled in London than on local bills.

In 1873 the interest charged by the Scottish banks to their customers on cash credit accounts ranged from four and one half per cent. on August 22d, to nine per cent. on November 8th, and beginning at six and one half per cent. in January, it closed at five and one half per cent, in December. In the same period the interest allowed on deposits ranged from two per cent. on August 22d, to six per cent. on November 8th, and beginning at four and one half per cent. in January, it closed at three and one half per cent. in December, 1873.

In Scotland there is a continuous and active employment of the means of the banks, and the numerous branches suck up, as it were, all idle capital from numerous small depositors in the remoter provinces; and beyond the moderate amounts which the managers of the branches are permitted to lend out on the spot, they remit to the mother banks for investment in the great financial centres, Glasgow and Edinburgh, where there is always an active demand from borrowers for the pursuits of commerce, manufactures, ship-building, mining, and agriculture.

The number of ordinary directors in the existing Scottish banks ranges from seven to twelve, and it is usual for two of the directors to go out annually. In some of the banks, I believe the outgoing directors are reëligible at once; in others, two new men must be introduced; but in a directory of twelve this rule can readily be adhered to, and yet a permanent staff of directors be maintained by choosing from the same body of fourteen men. Although the directors attend at specified times each week, and some of them are probably in the bank daily, yet the manager or president is de facto lord of the ascendant in all ordinary routine business; and in nothing so much as in banking is this one-man power necessary for success. Thorough mastership of the position, promptitude of decision, and honesty of purpose are of course essential attributes of a good bank manager, and in all these elements the Scottish bank managers, whether as respects the old private banks or the modern joint stock ones, have very rarely proved deficient.

I cannot conclude these remarks on Scottish banking better than by quoting what Adam Smith wrote on the subject of banking, more than one hundred years ago, and I may say that upon the principles therein enunciated the Scottish banks have almost uniformly been conducted. These principles are equally applicable now as when predicated by Smith, and to this side of the Atlantic as well as to the other: —

“ Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules. To depart on any occasion from these rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous, and frequently fatal to the banking company which attempts it. But the constitution of joint stock companies renders them in general more tenacious of established rules than any private co-partnery. Such companies, therefore, seem extremely well fitted for this trade. The principal banking companies in Europe, accordingly, are joint stock companies, many of which manage their trade very successfully without any exclusive privilege. The Bank of England has no exclusive privilege, except that no other hanking company in England shall consist of more than six persons. The two banks of Edinburgh (Bank of Scotland and Royal Bank) are joint stock companies without any exclusive privilege.”

William Wood.