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History of Banking in Scotland
Chapter VII - Development of Banking in Glasgow and the Provinces

UP to the time when Thomas Kinnear & Sons commenced business, the banking business of Scotland was entirely confined to Edinburgh. It was not until the succeeding year that the first attempt at provincial banking was made. Owing to the jealous and vindictive policy of the two public banks, it proved unsuccessful. The first country bank was erected in Aberdeen (1749), by Messrs. Livingston, Mowat, Bremner & Dingwall, as the Banking Company at Aberdeen. (They were the first private company to issue bank notes in Scotland. [Fleming.]) This movement was well timed, and was calculated to be of great service to the important district of Aberdeenshire. The Scottish Jacobite troubles were practically settled for ever, by the discountenance shown to the Stuarts subsequently to the Treaty of Aix-la-Chapelle; and the conclusion of the Austrian war of succession gave a period of peace to the harassed European powers. This satisfactory state of matters permitted attention to be devoted to the encouragement of British industry, and the country ceased to be drained of its blood and treasure. Circumstances looked favourable for the extension to the provinces of Scotland of those banking facilities which were so beneficial to the metropolis. But the wisdom of the ever-intelligent and enterprising Aberdonians was destined, in this matter, to be thwarted at the outset by the narrow monopolistic views of the financial magnates of the capital.

It does not appear, however, that the Edinburgh banks paid much attention to the Aberdeen bankers, until they showed symptoms of proving formidable rivals in the matter of circulation of notes, and until a similar danger manifested itself in Glasgow. The Bank of Scotland and the Royal Bank then established an agent in Aberdeen, to encourage the circulation of their own notes, and to collect those of the new company, and to get them retired for specie or Edinburgh notes. The scarcity of coin in the country proved the ruin of the Aberdeen Company. They could not long sustain the drain on their resoures, and accordingly towards the close of 1753 —after little more than four years' existence—they gave public notice of the dissolution of their partnership and their cessation of the issue of notes.

The biassed author of the narrative of their downfall attributes their inability to withstand the assault of the Edinburgh banks to their own inherent want of strength, without reflecting that the Bank of Scotland itself had more than once given way from want of specie in its coffers. It may be that the Aberdeen adventurers were injudicious in the extent to which they pushed their issues in proportion to their metallic reserves; but the fierce attack of the comparatively wealthy, and wholly unsympathetic, Edinburgh banks was of itself sufficient to put a stop to their operations. As it is, there is no assertion that they at any time failed to meet demands made on them, and their retirement from business was entirely voluntary. Elsewhere, it is true, there is record of an application to the Clerks of Session to register a protest of the Aberdeen bankers' notes, in order that summary diligence might pass on them, which was referred to the Judges, and unanimously refused as incompetent; but it does not seem that whatever delay may have occurred through the unworthy tactics of the public banks, that the partners' credit was at any time doubted. A disinterested judgment must, in the absence of further evidence, ascribe the failure of this, the earliest attempt to establish that magnificent system of country banking which has proved one of the distinguishing features of Scottish banking, to the prejudice and short-sighted self-interest of the two oldest banks.

But a greater danger in the matter of competition was engrossing the attention of the Edinburgh banks; and, flushed with their success in the north, they soon bent their energies to the suppression of formidable rivals who had arisen in the western capital. Up to the year 1749, the merchants of Glasgow were entirely dependent on the Edinburgh banks for banking accommodation; and, notwithstanding the competition between the two banks, cash credits were very sparingly granted, and capriciously withdrawn. The Glasgow merchants favoured the New in preference to the Old Bank (they were always so distinguished in those days), and this had favoured the circulation of the notes of the former. The increasing business of the city made this dependence inconvenient; and the merchants made a proposal to the two banks to establish an office in Glasgow for the transaction of their local business. Whether from mutual jealousy, or from a mistake in judgment as to the effect of such action, this opportunity of preserving their monopoly of the banking business of Glasgow was, happily for the prosperity of that city, lost to the Edinburgh banks.

In order, however, to improve its position among the Glasgow merchants, the Bank of Scotland, in the same year that the bank at Aberdeen was started, promoted the establishment of a banking company in Glasgow, under the designation of the Ship Bank, the firm being Dunlop, Houston & Co. [In Campbell's Historical Sketches of Greenock an interesting story is told of an imposition on this bank early last century. A man, purporting to be Sir Thomas Maitland, Admiral and Lieut.-General, drove up to the bank, in a magnificent hired equipage, and presented his order on Smith, Payne & Smith for £90. Both writing and spelling were defective ; but Mr. Rowand, the manager, seems not to have expected proficiency in such matters from a distinguished sailor and soldier. He was particular enough, however, never to discount to a stranger without an introduction. As Sir Thomas professed to know the minister of the Gorbals, he was referred to him for an endorsement. In due time he returned with the reverend gentleman's name on the back of the draft, and got the cash with a superfluity of deference. Doubts having presented themselves to the mind of the chief clerk, he submitted them to the manager, who sent to the clergyman to ask him to verify his signature, when it was discovered to be a forgery. The "admiral" was then sought for, and eventually found in the Highlands, whither, discarding his grand get-up, he had fled. He confessed that he was a discharged soldier who had lost an arm at Badajoz. The banker was so badgered at the trial by the prisoner's counsel—Erie Monteith— that he declared he would rather have lost the money than have come through such an ordeal. The prisoner was sentenced to be hanged; but Mr. Rowand exerted himself so strongly in his favour that the sentence was commuted to transportation. There is a smack of the sea and piracy, appropriate to a reference to the Ship Bank, about a statement in Banking in Glasgow that "it was the duty of the youngest apprentice to protect the treasure during the night, for which purpose he was armed with a gun, powder-horn, and a few charges of slugs, and locked in till morning. A bugle lay beside him to sound an alarm. For this dangerous service he received a present of £1: 10 : 6 yearly."] Not to have the wind taken out of their sails, the Royal Bank next year got up the Glasgow Arms Bank of Cochran, Murdoch & Co. Each of the new companies got cash credits from their respective patrons. Self-confident in the superiority of their resources, and over-estimating the dependence of the western traders, who themselves appear to have been unconscious of their own powers, the Edinburgh banks regarded these new bankers merely as agencies for the conservation and encouragement of their business. With true Glasgow precocity, however, the banking chickens had hardly chipped the shell ere they began to forage on their own account.

At last, realising the gravity of the case, the two old banks united their efforts to crush their proteges ere years should give them strength. They withdrew the credits granted, and ordered the two firms to give up their business. But the Glasgow merchants were not to be thus browbeaten; and, while desirous to maintain amicable relationships, declined to do as they were told. In this action they were well supported by the public spirit of the inhabitants. The Edinburgh banks then commenced a series of those persecutions with which they had formerly afflicted each other and the Aberdeen company. For this purpose they employed Mr. Archibald Trotter, once a partner in the house of John Coutts & Co., who had settled in Glasgow in 1757, to collect notes of the new firms and present them for payment in considerable sums. They had, however, heavy metal to deal with. The Glasgow bankers were not slow to adopt the petty tricks for delaying payment which had been taught them by their oppressors. It would even seem that, in several cases of delayed payment of notes which occurred, they acted not so much from want of cash, as with the object of tantalising their quondam patrons. The strife drifted into litigation, and was not closed for several years; but the independence of the new banks was secured. The older of the two—the Ship Bank—maintained an active career until 1838, when it merged in the Glasgow Union Bank, having, in the year previous, amalgamated with the Glasgow Banking Company, as the Glasgow and Ship Bank. The Glasgow Arms Bank, which was the one that Trotter had most trouble with, was not so fortunate, for it got into difficulties, and was sequestrated in 1793. The partners eventually paid their liabilities in full, without interest.

About this time private banking seems to have advanced apace in Edinburgh. Between 1750 and 1760 some ten private firms appear to have come into existence; so that with those previously in business, there appear to have been about twenty private banks in operation at the last-named date. The most important of those not already referred to were the houses of Adam & Thomas Fairholme, Wm. Cuming & Sons, Wm. Alexander & Sons, and Seton & Houston. Of these, all but the Cumings, and perhaps Seton & Houston, engaged in corn and other commission businesses as well as banking-----a combination which proved their ruin some years later. It was about this time (1761) that, as Sir William Forbes tells us, his firm gave up speculation and devoted themselves exclusively to banking, to which action he rightly attributes their further success. Other firms which arose in the decade, 1750 to 1760, or immediately previous to it, were William Hogg & Son, in whose house the afterwards eminent Dr. Robert Hamilton spent some of his earlier years; Johnstone & Smith (afterwards Johnstone, Smith & Co.), Fordyce, Malcolm & Co., Arbuthnot & Guthrie, Gibson & Hogg (subsequently Gibson & Balfour), Scott, Moncrieffe & Ferguson, and Andrew Sinclair & Co. [Sir W. Forbes (followed by Mr. Richardson) styles this firm W. Sinclair & Co. No confirmation of this has been found. Perhaps it was a misprint.] Of individual bankers, George Chalmers, Samuel Foggo, John Fyffe, and William Hogg, jun., probably complete the list. Most of these had passed away by 1772. They were mainly mercantile houses, but dealt in exchange business, and banking generally, as occasion offered.

From a curious paper published at Edinburgh in 1778, entitled "Bank Disputes," reference is made to a "convulsion of credit 1761 and odd years, in which the Royal Bank took no part." What is meant is not exactly apparent; for, although the Seven Years' War (1756-63) disturbed the circulation of specie in Scotland, we are unaware of any special crisis which occurred in consequence beyond the action of the banks (including the Royal) in December 1761, in reducing cash accounts by one-fourth. This proceeding seems to have been absolutely necessary, in order to replenish the reserves of coin. A contemporary account states that "exchange has risen so high that bills on London, at a short date, sell at Edinburgh at four and a half and even five per cent, a rate considerably higher than exchange has amounted to for forty years." One of the causes contributing to this condition of the money market appears to have been the realisation of funds in Scotland by proprietors desiring to purchase the public funds, which were then at very low prices, consols being quoted, even after the peace in 1764, at 45 per cent. This money was paid in Scottish bank notes; and, it being necessary, in order to remit the funds to London, to exchange them, there arose an extraordinary demand for cash or bills upon London on all the banking companies in Scotland. [Logan, 2nd ed. p. 79.] The year 1761 appears to be in the natural series of periodic crises.

In January 1762, the Edinburgh banks made a further restriction on holders of cash credits, prohibiting them from paying in and drawing out money on the same day. This provision appears to have been aimed at the private bankers, whose practice was to draw out a supply of cash every morning, and re-deposit the balance on hand in the afternoon. The prohibition must have been afterwards withdrawn, for the practice continued till the close of private banking. In March following, the banks took a further step to strengthen their position, for we find them advertising as follows: "Both the banks at Edinburgh, established by Parliamentary authority, hereby give notice, that they have resolved to receive in money at their respective offices, in the way of borrowing, on the treasurer or cashier's receipts, for six months certain, or longer, as shall be agreed on, at the rate of five per cent per annum; and at four per cent per annum repayable on demand, on cash accounts, free of all charges. That this measure is taken to avoid the inconvenience of a sudden call upon their debtors, and towards the support of public credit, trade, and manufactures, which have always been the care of the banks." At this time the notes of the Bank of Scotland bore the well-known optional clause, an option of which they seem to have taken the benefit in some instances (for the first time, it was believed) by marking notes presented for payment; [Scots Magazine, April 1762.] but those of the Royal Bank were payable on demand. The exchange on London had now fallen considerably, and by April the rate was only ¾ per cent ; and so the crisis passed away. Next year the banks gave notice that they had resolved to repay the deposits taken at 5 per cent, as they were unable to make a -profitable use of the money.

In passing, we may refer to a few points worthy of notice which occurred during the period we have just gone over. By the year 1750 the metallic currency of Scotland had become almost entirely replaced by the notes of the public banks. The country was always deficient in coin, so the circulating medium supplied by the banks was readily appreciated; and, as there was an almost incessant drain of specie to England, the tendency of paper to drive out coin was accelerated. In 1752 the Bank of Scotland and the Royal Bank commenced the system of note exchanges [Reid's Manual. Also Logan.] which has (with modifications) continued to the present time, and to which must be greatly attributed the high character for convertibility always attaching to the issues of the banks in Scotland. Guinea notes were first issued by the Royal Bank in 1758, and bore the date 24th March.

The success of the two Glasgow banks does not seem to have furthered the development of country banking for some time, as we find that no other bankers entered the field out of Edinburgh up till 1761, a period of eleven years from the establishment of the Glasgow Arms Bank. In that year (3rd November), however, the Thistle Bank Company of Sir Walter Maxwell of Pollock, Bart., James Ritchie & Co. commenced business. This firm merged in the Glasgow Union Bank in 1836, after a prosperous career of seventy-five years. David Watson, whose firm became afterwards James & Robert Watson, also founded a private banking house in Glasgow about this time; but the business appears to have been more an agency for other banks than an independent one. Dundee was the next town to take up the trade of banking. In 1763 the firm of George Dempster, Esq., & Company commenced as bankers, under the designation of the Dundee Banking Company. Unlike the Glasgow banks, this was (in form at least) a regular joint-stock company, the original partners in which numbered thirty-six, with a nominal capital of £12,600 in 63 shares of £200 each. Of this, only one-tenth was called up at first. The bank got into difficulties in comparatively recent years; but it was restored to a prosperous career by the discretion of the late Mr. C. W. Boase, who was appointed manager. While still under his management, the bank, which had then a capital of £100,000 paid up, and a large business, was amalgamated with the Royal Bank of Scotland in 1864. [A Century of Banking in Dundee, C. W. Boase, Edinburgh, 1864 and 1867.]

Another incident which deserves notice within this period was the failure, in March 1764, of Messrs. Adam & Thomas Fairholme. They had not been long established as bankers; but Sir William Forbes states that "the family of Fairholme had for some generations been considered as of distinguished credit and reputation." He adds, "They dealt largely in corn like their neighbours, in receiving money on deposit, and in exchanges." During the Seven Years' War, Government stocks were depressed in price, and Adam Fairholme speculated largely in them. Prices rose in prospect of peace, and he might have secured a large profit (estimated at £70,000). But, eager to make still larger gains, the play was continued until not only was the profit lost, but the firm was crushed under an overload of obligations.

No other banking failure occurred at this time, but the effects of this crisis, while not serious, are described as "extremely unpleasant." The rates of exchange on London ruled from 3 to 5 per cent premium, occasioning a heavy demand for gold for remittance to the south. To protect themselves, the banks restricted their advances, and thus kept down the amounts of their note issues. There was, consequently, both a severe strain on the banks and great inconvenience to the general business community. But the difficulties of the situation were satisfactorily overcome.

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