VOL. III.

PART III.

JOURNAL OF THE INSTITUTE OF BANKERS.

MARCH, 1882.

RICHARD B. MARTIN, Esq., M.P., in the Chair.

ON THE HISTORY AND DEVELOPMENT OF BANKING IN

SCOTLAND.

BY JAMES A. WENLEY, EDINBURGH.

[Read before the Bankers' Institute, Wednesday, 18th January, 1882.7

THE Council of the Institute of Bankers did me the honour some time ago to ask me to read a paper before the Institute, and suggested as its subject the "History and Development of Banking in Scotland." It gave me pleasure to comply with this request, though I felt that I could not hope, within the limits of such a paper, to present more than an outline of the subject. Scottish banking is still without its historian. It is to be earnestly desired. that the story of its rise and progress, its successes and disasters, should be fully and fairly told. But manifestly this is not the occasion for such an undertaking; and my endeavour must therefore be to place before you a few of the prominent events in the history, leading up to the state of matters existing at the present

time.

It does not appear that the practice of banking existed in Scotland, even in its most elementary form, before the close of the seventeenth century. The ideas of the people on money transactions were still quite primitive. They had just emerged from a period of civil war, and for several generations the country had never been in a state of settled peace. Continual warfare had kept the inhabitants in poverty, and there was little commerce or trade, and nothing worthy of the name of credit. The Revolution Settlement of 1688 found the country in this condition. It was

joyfully hailed by all classes of the people, for it was thoroughly in accord with their hopes and aspirations, and it introduced them to a state of rest hitherto unknown. Immediately, enterprises and projects, practicable only in peaceful times, sprang up, and the commercial spirit of the nation began to display itself in many ways. Nineteen years after the Revolution, came the Union with England,-a measure which, though bitterly opposed by the so-called patriotic party, has been one of Scotland's greatest benefits.

This period of progress witnessed the beginning of banking in. Scotland. In the year 1694, the Bank of England was established and a few Scotchmen carrying on business in London conceived the idea of founding a similar institution in their own country. One of them knew an English merchant, John Holland by name, and consulted him on the subject. This gentleman, if he had lived in our own time, would probaby have been termed a financial agent, for he undertook the preliminary arrangements, and drew up the prospectus of the new bank. The London Scotchmen put the proposal in the shape required for an Act of the Scottish Parliament, and in that form it was sent to Edinburgh. It duly passed into law on the 17th July, 1695. The Act recites that "Our Soveraign Lord, considering how usefull a publick bank may be in this kingdom, according to the custom of other Kingdoms & states, and that the same can only be best sett up and manadged by persons in company with a joint stock sufficiently indued with these powers and authorities and libertys necessary and usual in such cases," "a joint stock amounting to the sum of twelve hundered thousand pounds money" (i.e., £100,000 sterling) was allowed "to be raised by the company hereby established for the carrying on and manadging of a publick bank." The persons subscribing to the joint stock were declared to be one body corporat and politick by the name of the Governour & Company of the Bank of Scotland," with perpetual succession and a common seal. It was also declared that for the space of twenty-one years after the date of the Act it should not be lawful "to any other persons to enter into and sett up an distinct Company of Bank within this kingdom."

The leading features of the bank's constitution are that the capital is in the shape of a joint stock, that the subscribers are a corporation, and that for twenty-one years they are granted a monopoly of banking in Scotland. There was no contract with the Government to lend them money, and no power of control reserved to the Government. The bank was purely a business institution, and was quite untrammelled in the conduct of its affairs. It had been projected in London, and as the proprietors there were thought to be better acquainted with the nature and management of a bank than those in Scotland, the governor and one-half of the directors were at first chosen in England, and the deputy-governor and one-half of

the directors in Scotland. This arrangement fell into disuse, it is said, as soon as "the English gentlemen observed the good management of the directors in Scotland," and all the directors, twenty-four in number, were thereafter elected in Scotland; but it was agreed to appoint "thirteen trustees out of the English proprietors, to manage what affairs the company should have at London, and for corresponding with the Scots directors." It is added that "in a very few years thereafter, the number of the English proprietors being reduced to less than thirteen, the whole direction and management of the bank did center in Scotland, and in all probability will continue so."

Mr. Holland was the first governor, and held the office for one year. He appears to have given great attention to the affairs of the bank, and to have conducted them during his short term of office with prudence and success. He went to Scotland, and remained for some time at his own charges to start the new business. The London adventurers highly appreciated his able and disinterested conduct, and wrote to him that "all here are extreamly sensible of your great care and successfull good management of the affair hitherto; we hope the honesty of the designe, the great advantage it will be to the whole kingdome, and the sanctyty of an Act of Parliament are sufficient to secure us against any attempts of our enemies." And the Scottish proprietors sent him what they called "a complement of silver platt to his Lady." His letter of acknowledgment is dated from Brewood, "neare Woolverhampton in Staffordshire," to which place he had just retired from the bustle of London. He says of the gift :-" The vallue of it is considerable, but the respect and kindness the company shew to me in it, I esteeme much more, and indeed nothing could have pleased me better, for I have wished that something or other might happen that I might be thought to have some esteeme in Scotland, several of my friends who knew upon what account I went there haveing a very little opinion both of the bank and the temper of the Scotch nation, but now they will believe that the bank is not extinct, and that the Scotch are as generous as others." It would thus appear that Mr. Holland's Scotch bank had not found much favour with his English friends; but there can be no doubt that under his care it had been judiciously planted, and had fairly taken root.

The authorised capital was 1,200,000 pounds money of Scots, equal to £100,000 sterling. In January, 1696, a call of £10,000 was made; and in the following September, owing to the hostility shown to the bank in certain quarters, a further call of £20,000 was deemed expedient. But two years afterwards the danger had passed away, and the money was returned to the proprietors, the capital being thus reduced to £10,000. The bank went on prosperously till December, 1704, when it suddenly stopped payment. A Memorial and Intimation from the Governor &

Company of the Bank," "concerning the present state thereof," dated the 28th December, explains that this unexpected event was caused by "the scarcity of money all over the kingdom," and by "a report that the Privy Council was to cry up the value of species," and states "that on Monday, the 18th of this instant December, the money in the bank was wholly exhausted, and thereby payments stopt." Thereupon the directors applied to the Privy Council that they "might appoint some of their number to take inspection of the company's books." A committee for this purpose appointed by the Council reported that the bank had "sufficient Provisions to satisfie and pay all their outstanding bills and debts, and that with a considerable overplus." A balancesheet was also drawn up for the information of the Council. The figures are curious, and illustrate the narrow trade and credit of the times:

:

Dec. 19. By cash in the Treasurer's hands remayning in old

The proprietors of the bank soon removed the interruption. They met and resolved to allow interest on any of their notes that might not be presented before the 18th April following, and to call up £10,000 of additional capital. Public confidence was restored, and the bank's business again went on prosperously, for next year the dividend paid was at the rate of 20 per cent. The capital called up after the stoppage was not required for other purposes, and was returned in 1706. From this time till 1720, the paid-up capital remained at the modest sum of £10,000.

From its origin, the bank issued notes. A clause in its first Act relates to this branch of the business, for it provides for proceedings being taken, if necessary, for obtaining payment of the "tickets" granted by the bank. These tickets or notes were at first of the values of £100, £50, £20, £10, and £5. In 1704, one pound notes were used. With the exception of the £50 note, these denominations have been in use ever since. The only other notes issued have been for £2. 2s., £2., and £1. 1s., but these were discontinued many years ago. Till recent times no restriction has ever been placed on the issue of bank notes in Scotland of £1 and upwards, but they have never had the quality of legal tender, and have always been payable in coin.

It will be seen from the balance-sheet presented to the Privy Council in 1704, that the transactions of the young institution were on a very limited scale. The sum of £21,000 was employed in mortgages, £27,000 in "moveable" or personal bonds, and £11,000 in discounts. The money sunk in stone and lime for the bank office was £694.

At this period the loans were charged interest at the rate of 6 per cent., with an abatement of 2 per cent. if regularly paid every half-year; but the rate of discount on bills was 8 per cent, for sums above £50, and 12 per cent. for smaller sums. The loans were evidently considered more convertible than the bills.

The salaries paid to the officers of the bank were also primitive. In 1697, the treasurer or general manager received £100 a year, the accountant £60, and the secretary £25. The annual wages of the messenger were £12. The honorarium distributed among the twelve ordinary directors was £120. For the year, the entire charge for the salaries of the staff and for directors' fees was £452.

Immediately after the bank was started, branches were opened in Glasgow, Dundee, Montrose and Aberdeen, for the purpose, as was announced, of receiving and paying money in the form of inland exchange. But it was soon found that the trade of the country did not afford a basis large enough to yield sufficient profit even to pay the expenses of these branches, and they were all withdrawn in 1697 and 1698. It was not till a much later period that the practice of receiving money on deposit became so general as to lead to the development of the branch-bank system.