It is difficult to know if the idea of a bank having a network of branch offices was an original Scottish idea. What is certain is that Scotland was the first country to develop a series of banks with branches.

The idea was present in Scotland from the beginning. Shortly after its formation in 1695 the Bank of Scotland opened branches in Aberdeen, Montrose, Dundee and Glasgow but it was a difficult time for Scotland with a series of bad harvests and the collapse of the Darien scheme. The branches were soon withdrawn but the idea was not forgotten. The formation of the Royal Bank in 1727 presented a range of competitive challenges to the Bank of Scotland to which it responded by again trying to set up a small branch network. In the 1730s branches were set up in Glasgow, Aberdeen and Dundee but again the experiment was unsuccessful and the branches were closed.

Credit for the first successful branch system must go to the British Linen Company which was set up by Royal Charter with powers to foster the linen industry in Scotland. These powers also included the right to engage in banking and by the 1760s the company had an extensive banking interest. It had established agents, about ten of them, in various parts of Scotland and some of these carried on business as bankers as well as linen agents. It is this dual role of many of the early branch bankers which makes it impossible to unravel all their activities and to offer a judgement on whether these men were primarily bankers or if their other interests were their major activity. Some of the provincial banking companies also had branches in the 1760s but again it is not possible to be certain about the nature and types of business being carried out.

The success achieved by other banks in the 1760s moved the Bank of Scotland and Royal Bank to try to control them first by setting up a note exchange and then by setting up branches to compete actively with them. The two Edinburgh banks appear to have established an agreement on this for the Royal Bank opened an office in Glasgow in 1783 while the Bank of Scotland opened several branches in other parts of Scotland, e.g., Dumfries, Kelso, Kilmarnock, Inverness, Ayr and Stirling by 1780. In some of these the branch came into direct competition with the office of a provincial bank. This policy of branch extension was very successful for the two banks coming, as it did, at a time of unprecedented expansion in the economy. The branches meant that the banks were in a competitive position to supply the demand for credit and so expand their note issues. Before long the Royal Bank's Glasgow office was doing more business than the head office in Edinburgh and the Bank of Scotland's network had been so successful that it was extended to twenty offices by 1810 (including one in Glasgow for its seems that the territorial agreement between the Edinburgh banks had broken down).

The existence of the note exchange and the branch systems in competition with provincial banks involved Scotland in a highly fluid system. It quite often happened that some of the customers of a provincial bank, dissatisfied with the services of that bank would petition one or other of the Edinburgh banks to establish a branch in their town. These men, if successful in their petition, would then become the main caucus of customers of the new branch. Similarly the customers of a branch might be dissatisfied and decide to set up their own provincial bank and perhaps establish a few branches of their own in satellite towns.

One of the major problems involved in setting up a branch was in finding the right people to staff it. Unlike today when branches are staffed by salaried personnel appointed by head office the practice in the 18th and early 19th centuries was to appoint some local businessman as agent to run the branch. In this way David Dale, prominent Glasgow merchant and manufacturer, was appointed joint agent of the Royal Bank's Glasgow branch and David "King" Staig was appointed agent for the Bank of Scotland in Dumfries. He was at one time provost of the town and a very powerful businessman with extensive contacts and political influence.

Generally the men selected as agents were:

"tried men of business, who have proved, by the manner of conducting their own affairs, their capability of successfully transacting whatever may be confided to them." (Thomas Joplin)

Many of the agents were writers (lawyers), e.g., Wm Craig, writer in Galashiels, was agent for the Leith Banking Co. and was popularly known as "God's Lawyer" because he arbitrated in disputes between townspeople. Bank directors were usually careful to pick only men of the highest integrity.

Agents were normally free to continue their other business interests after their appointment. They were usually paid a commission on the amount of business done by them and out of this they had to pay their clerks and offset any bad debts which they might have incurred. In other words the post of agent might not be all that lucrative in itself but the appointment was sought because:

"it gives influence to the agent in the town; it promotes his own business if in trade; and, if a writer or attorney he makes it pay him as a notary and solicitor, when it may not do so as a bank agent." (Hugh Watt)

Branch agents would receive parcels of bank notes from head office which they used to discount bills which, if inland or foreign bills, they might then remit to head office for collection. Some branches also operated cash credits and accepted deposits.

The position of trust in which agents stood in relation to their bank was, to some extent, covered by a bond of fidelity signed by the agent and his guarantors. To increase the security, however, banks began to appoint Inspectors of Branches who travelled the country checking cash balances, bills and vouchers in the custody of the agents. The Bank of Scotland began this in 1801 but other banks soon followed suit. Some provincial banks merely sent round two of their directors but where the branch network was extensive a more permanent solution to the need for inspection was found in the appointment of an inspector and, as the system grew, in the appointment of Inspection Departments.

The great growth in the branch system really came after 1830 with the development of the joint-stock banks although by that time the density of bank offices (per head of population) was already much higher in Scotland than in any other part of the United Kingdom. The figures, so far as they are available are given below.

As can be seen from the table the development of joint-stock banks after 1830 was very firmly based on the extension of branches. But this enormous growth in the number of offices reflects the industrial and urban changes of the times. The. development of industrial towns in the 19th century and the growth of suburbia and new towns in the 20th century created great opportunities for the banks to extend their branch networks.

Yet this growth in the number of offices conceals certain qualitative changes which were, if anything, even more significant than the growth in numbers. First among these changes was the gradual replacement of agents by salaried managers (rather confusingly the terms were used interchangeably for many years). As places like Perth and Stirling, which were quite small towns in the 19th century, had branches of five or six banks it became increasingly difficult for banks to find men of the right calibre, from amongst the business population of these towns, who were willing and able to run the expense and risks associated with being a bank agent. Various compromise arrangements were tried but ultimately the only possible solution in the long run was for the banks to appoint people from the head office staff to become bank managers. In this way a new career path was opened for people who entered the service of a bank as clerks and could then expect, in the fullness of time, to be appointed manager of a branch. More than this, the clerks in a branch were increasingly appointed by head office and they too could expect to enter upon the promotion structure. It still happened that managers could be appointed from outside the bank but this very soon came to be the exception rather than the rule.

The proliferation of branches in Scotland and the erection and extension of joint-stock on the Scottish model throughout the British Isles created a substantial demand for Scottish trained bankers. The result was a scarcity of experienced men and this had the effect of increasing salaries in an effort to retain the services of staff. It can also be argued that the promotion structure in branches was also opened up to create opportunities for staff and so to retain their services.

A corollary of these developments was an increase in the numbers of staff in a branch. In the very early days a branch might be run by an agent and a clerk but by the second half of the 19th century the amount of business conducted in a branch was such that a manager, teller and two clerks was the norm. By the late 20th century however, such had been the extension of the volume and range of business conducted by a branch that the average branch staff numbered nine to twelve although there were great variations on either side of this mean. The other great changes which had taken place in the second half of the 20th century were in the age and sex composition of the bank's staff.

Female employees were almost unheard of up to 1900 but the effects of two world wars together with more general changes in attitudes to women in employment have resulted in an employment structure in which the majority of employees are female. The majority of bank staff are now also very young. A bank training is considered a useful background by many employers with the result that bank trainees with a few years service have often been lured away to other employment leaving the banks to recruit school leavers to fill the gaps. The long-term effects of recession, amalgamation and the introduction of labour-saving data-processing machinery, however, may be to reduce the preponderance of young people and females.

Counting the number of branches is less of a problem now than it was in the 19th century. In the early days banks often sent a director or a clerk to transact business at agricultural fairs or markets and in the early 19th century the Leith Banking Company had a tent which it pitched at these markets and in which it extended hospitality to customers before conducting business. (This kind of thing still goes on although the office is now usually a caravan rather than a tent.)

Also banks might open an office on only one or two days per week. This would operate as a sub-branch although many sub-branches graduated to full branch status. Services of this kind were begun— mostly in factories and in market towns in the 19th century and now extend to hospitals, colleges and anywhere that there are large groups of people.

Similarly in order to provide a service to customers in the remoter areas of the Highlands and Islands; from the late 1940s vans were used by the Clydesdale and Royal Banks to take banking services to people in these areas and in the 1960s and 1970s these services were extended to boats and planes, by which time all the banks were involved.

The existence of sub-branches and mobile branches makes the analysis of the actual number of offices rather difficult. Once allowance is made for these difficulties, however, it is clear that the density of offices is still greater in Scotland than it is in other parts of the United Kingdom.

Offices of the Scottish banks were until lately largely confined to Scotland. There seems to have been an understanding between Scottish and English banks in the 19th century that they would not cross the border in their branch extensions. But in the 1860s and 1870s the Scots ignored this tacit agreement and opened offices in London at the same time promising that they would not extend their branch networks through the rest of England—they were already prevented by law from issuing their notes in England. Their move into the London money market, however, was designed to economise on the use of English banks as London agents. Any bank conducting business in the British Isles was compelled to manage and settle an increasing number of its transactions in London which was fast becoming the commercial and financial capital of the world. The system which had developed was for the Scottish banks to have a London bank as agent to settle its business but this proved to be rather inconvenient and expensive. The movement of the Scottish banks into London provoked the wrath of the English bankers who excluded the Scots from their Clearing House and did not invite them to join until 1973—the Scots then declined the invitation.

In the 1970s the English banks set up a few branches in major Scottish cities ostensibly to service their customers who were already in Scotland but these have only been moderately successful. It does not appear that the English banks contemplate a large scale movement into Scotland. The nature of this development, however, led the Scots to re-think their attitude to English banking. For a century they contented themselves with their London offices and a very few offices in the north of England. Given that the Clydesdale Bank is owned by the Midland, it would not be reasonable to expect this concern to set up elsewhere in England, but the Bank of Scotland set up branches in Birmingham and Bristol, and announced that others would follow. The Royal, despite its ownership of an English clearing bank, also decided, in 1982, to set up further branches in England, having already opened in Carlisle in 1977.

The attention of the Scottish bankers, however, has not been confined to England. The development of North Sea oil in particular has encouraged Scottish bankers to develop further their international business. They began cautiously by opening representative offices in various parts of the world—notably the oil producing areas of America and several of these offices have since been upgraded to full branch status although their raison d'etre will continue to be corporate rather than personal customers.

The logic of branch banking has always been dictated by the nature of the demand for banking services. In the 18th century the demand was for credit and branches were set up to extend credit by issuing notes. In the early 19th century however, this began to change as deposit banking became more important than note issuing and as the nature of the economy changed from being relatively homogeneous to being highly concentrated with heavy industry in particular focusing its activities in west-central Scotland and the Tayside Region. The result of these developments in industry was that the greatest demand for credit shifted to the regions where there was the greatest concentration of industry. But savings (i.e., deposits) in these areas were not sufficient to supply the demand for credit so banks had to raise deposits elsewhere and the extension of branch networks on a national scale served this need. The branches served to transfer deposits from net savings areas in the country to net borrowing areas. The system has sometimes been criticised for this, it being argued that the saving areas were thereby deprived of funds which might otherwise be used for their development. This argument, however, has never been satisfactorily proven because its proponents have never been able to show that there was any unsatisfied demand for credit in the areas from which funds were being removed.