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History of Banking in Scotland
Chapter XV - From War to Crisis - Decay of Local and Development of National Banking

THE period of about ten years, from the close of the Napoleonic wars in 1815 to the great crisis of 18 25-6, which forms the subject of the present chapter, was one of almost profound peace. During the first year, the bitter effects of the terrible international struggle which had convulsed the world were severely felt in Britain. Commercial enterprise was in a state of great prostration; provisions were scarce and dear; and the sufferings of the labouring classes broke out in disturbances which were not always quashed without bloodshed. In 1817, however, symptoms of improvement manifested themselves. Commerce revived, the national industries showed greater signs of life, and financial ventures were indulged in. Steamboats began to ply on all the great rivers; and steam power was applied to printing and manufactures. Foreign loans, also, became popular, and much British capital was thus profitably employed in ameliorating the distresses of the European nations. In 1816, the Government issued a new silver coinage. This had become an absolute necessity owing to the worn condition of the metallic currency. This was so bad that it is recorded that, in some districts, the greatest surprise was manifested at the liberality of the Government in supplying for general currency beautifully-executed "medals" in place of the smooth discs in circulation. Early in the following year, the gold coinage was also renewed; and in the autumn, the Bank of England partially resumed payment in specie. Before the death of George III., in 1820, considerable advances had been made in the national prosperity. Some great public works—such as the Edinburgh and Glasgow Canal in Scotland—were completed; ocean steam navigation was developed; and a healthy amount of national industry was displayed. The two great questions of Free Trade and Parliamentary Reform were much agitated at this time.

The year 1820 would seem to have been the turning point of the period, when the feverish stage commenced. In the middle of that year a great commercial and financial crisis occurred in Ireland, whereby private banking—which had, for the most part, been conducted on most unsatisfactory principles—was virtually extinguished. Some twenty banking and note-issuing firms were swept away. This crisis did not, however, extend to Britain. There, enterprise and industry were proceeding apace, in buoyancy and hope. In 1821, the Bank of England was permitted fully to resume specie payments; and, during the three succeeding years, the condition of the country was one of much prosperity, combined with which, the spirit of speculation was largely developed. After that came the inevitable crisis.

As regards banking in Scotland during the greater part of this period, the leading characteristics would seem to have been, the continued development of the large banks, and the withdrawal or failure of purely local establishments. Previous to 1825, only two new firms commenced business. The first of these was the Exchange and Deposit Bank of John Maberly & Co., with offices at Aberdeen, Montrose, Dundee, Edinburgh, and Glasgow. They were properly an English linen manufacturing firm, and in 1818 they established themselves as bankers in Scotland, with the object of profiting by the high rate of exchange on London. This entrance on the Scottish field was by no means relished by the native bankers; but it is probable that the public profited by it. This will be understood when it is remembered that the usual par of exchange was 40 to 50 days; whereas Maberly commenced with 20 days, and latterly reduced the period to 10 days. The result showed that the intrusionists overreached themselves in adopting a scale which has only in recent years been naturally attained to; but there can be little doubt that their opponents had erred on the side of their own interest. After a career of fourteen years as bankers, Maberly & Co. succumbed in 1832; but it does not appear whether their failure is to be attributed to the banking or to the manufacturing business. The liquidation was conducted under an English fiat of bankruptcy, the debts in both departments of the business amounting to £149,082, on which a dividend of 4s. 5d. per £ was paid. As the assets are stated to have realised £76,669, it would seem that the expenses of liquidation were very heavy.

The second bank to which we have referred was the firm of Hay & Ogilvie, who commenced business in Lerwick in 1821, under the designation of the Shetland Bank. They were also engaged in trade, which part of their business was, no doubt, previously established. They appear to have ceased issuing their own notes in 1827; but for what reason is not stated. They continued for twenty years, when they made a bad failure. One of the partners, John Ogilvy (the name is thus printed in the notice, although differing from the spelling in the official style of the firm), died in 1829; and the failure, according to one authority, [Boase, 2nd ed., p. 364.] occurred in 1830, with debts, both as merchants and bankers, amounting to £60,000, on which a dividend of 6s. per £ was paid. The date is otherwise given [Somers, p. 107] as 1842, the liabilities as £140,000, and the dividend in sequestration as 5s. per £, with the prospect of a little more. Perhaps they resumed business, after a composition, in 1830. From this time to the closing year of the period, bank extension consisted entirely in the opening of branches throughout the country. The Commercial Bank and the British Linen Company displayed the greatest amount of activity in this respect.

A marked feature of this period was the disappearance of a considerable number of banks—the exits being pretty well spread over the ten years. In 1816, the Falkirk Union Bank, with liabilities to the amount of £60,000, was sequestrated. The number of partners was only eight. Malachi Malagrowther states that they met their engagements without much loss to their creditors; but it is probable he had not asked the latter for their opinion, seeing the total dividend did not exceed 10s. per £. However, it was a small concern. In 1820 a little known establishment, called the Glasgow Commercial Bank, withdrew from business. Towards the close of the next year the firm of Sir William Douglas, Bart., & Co., carrying on business at Castle-Douglas, under the style of the Galloway Banking Company, was also wound up. It had existed for fifteen years. It may be presumed that its liabilities were met in full. At this time, also, the Kilmarnock Banking Company, who started early in the century, merged their business in that of Hunters & Co., Ayr.

In the following year (1822) a very unfortunate failure occurred. The East Lothian Banking Company had been formed at Dunbar in 1810, with a capital of £80,000, in 400 shares, held by twenty-seven partners. It would seem that the bank never did well. This was principally owing to the disreputable conduct of the cashier (or manager), William Borthwick, who, after involving the bank in much bad business, absconded with £21,000, on 10th April 1822. Messrs. Forbes & Co., of Edinburgh, advanced £100,000 to assist the liquidation, pending the realisation of the assets and a call of £250 per share. The liabilities amounted to £129,000, and the assets to £63,000; but the partners paid in full. In connection with this affair there is a rather mythical-looking account of a design on the part of Borthwick to kidnap one of the directors and the law agent—who were probably of too inquiring a disposition for his taste—in order to further his private designs. According to Borthwick's written directions, which were found among his papers, they were to be inveigled to a specified place, seized, gagged, and put into empty puncheons with air-holes. They were then to be taken to Dunbar and shipped (presumably as Scotch ale) on board a vessel belonging to Borthwick's brother, which was about to sail for Dantzic. Thereafter they were to be conducted to a desolate part of Prussia and confined eight or nine months "without change of clothes or shaving materials." The conspirator concludes (what was, doubtless, a day-dream with which he gratified his spleen) thus: "I will venture to affirm that at the expiry of that time they will have repented most sincerely of their conduct." [Banking in Glasgow.] In 1824 the Edinburgh firm of John Wardrop & Co. disappeared from the list of bankers.

The year 1825 is notable for the establishment of four new banks, all of which were successful. One of these was the Aberdeen Town and County Banking Company, which is one of only three provincial banks surviving from the multitude which have been started. Let us hope that no amount of charming on the part of the large banks will induce these establishments to forego their independence. The roll of banks in Scotland is small enough; it can hardly be for the public advantage to have competition further narrowed; and the advantage to the shareholders, so long as their business is prosperous, of amalgamation, is probably not sufficient to counterbalance the chances they would forego of development into national banks. The Aberdeen Town and County Bank (now the Town and County Bank, Limited) started with a capital of £150,000, held by 470 partners. Another bank established in this year was the Arbroath Banking Company, with a capital of £100,000 subscribed, and of £40,000 paid. It amalgamated with the Commercial Bank of Scotland in 1844. A third was the Dundee Commercial Bank (the second of that name), with a capital of £50,000. It retired in 1838, in favour of a newly-organised company—the Eastern Bank of Scotland—which was designed to carry on a more extended business. Thus euphemistically; but one who was well able to speak on the subject thus describes the event: "The mystery of this proceeding was revealed in the course of winding up the affairs of the former bank, when the partners came to find that not only had its whole capital been lost, but about half as much more, which, less the premium of £20,000 received from the Eastern Bank for the goodwill of the business, they had to liquidate. For this purpose £40 per share was called up; but £13: 10s. per share of this was returned subsequently. [Boase.]"

The fourth was the now well known and powerful establishment, the National Bank of Scotland. From the outset, it appears to have been designed on a large scale. Indeed, it was the result of the combination of no fewer than three distinct banking companies projected in 1824. The first of these seems to have been the Scottish Union Commercial Banking Company; but it was speedily followed by the Scottish Union Banking Company, and the National Bank of Scotland, the prospectuses of all three being before the public at the same time. The advertisements of all of them state that the subscriptions were rapidly filling up; but it seems to have become evident, even to the enthusiastic promoters, that such an accession to the number of Edinburgh banks was unadvisable. The Scottish Union and the National made what they termed "a treaty of union," whereby they were to unite their interests and divide the prospective appointments to their mutual advantage, under the designation of the Scottish National Banking Company. They then held out the olive branch to the Scottish Union Commercial; but their advances were not reciprocated.

However, the united companies were not to be so easily baffled in their design of preventing rivalry. Finding they could not win the promoters to their side, they made a seductive attempt on the subscribers. On 1st January 1825, the united companies published a long advertisement, in which they reflected warmly on the "insidious" conduct of their rivals, and threatened that, if the Union Commercial Company would not join them, they would advertise their readiness to receive individual subscribers to that company into their concern. Whether as the result of this threat, or from the prevalence of reasonable counsels, the two parties came to an agreement within a few days, and announced the "union of all of the new banking companies of Edinburgh" as the Scottish National Banking Company. As the subscription lists were closed on 8th January, there seems to have been no difficulty in completing them. Further delays occurred, however, and it was not until 21st March that the company got finally started as the National Bank of Scotland. The nominal capital was £5,000,000 (now fully subscribed) in £10 shares. At first only £500,000 of the capital was issued.

The bank seems to have at once commenced a branch system, by the establishment of offices in nine towns, seemingly rather selected from their geographical positions as embracing the whole country, than from their business importance. In 1833 they had 24 branches; and a continual increase has now brought the number up to 115. In 1831 the company obtained a Royal charter of incorporation, granted under the pernicious principle of unlimited liability, which at that time commended itself to statesmen as superior to the ancient principle of limitation, which is now again held, under the light of terrible experience, to be the proper constitution of corporations.

Towards the end of 1825, another attempt was made in Edinburgh to organise a new bank. [Scotsman newspaper, 26th November 1825.] It was to be on a different footing from the National Bank, as it was not intended to extend its operations outside the metropolis, but to conduct it as the Glasgow and other local banks were then managed. But the events of the closing months of the year put an end to the project.

The earlier part of 1825 witnessed the climax of the speculating spirit which had been working with ever-increasing excitement since 1820. The opening of the Spanish South-American Colonies, by the achievement of their independence, to British enterprise, had stimulated industry, and had occasioned a mania for loans to the new States. These loans are estimated at fifteen millions. At the same time, bubble companies were rampant, and gambling in their shares was excessive. The economic heresy, called the mercantile system—which proceeded on the assumption that the wealth of a nation was coordinate with its command of the precious metals—exercised an evil influence at this time. It was thought that the boundless natural stores of gold and silver in the Spanish colonies had only to be tapped by British commerce to secure the wealth of the fortunate adventurers. Lord Lauderdale stated that the schemes subscribed for amounted to two hundred million pounds. From a statement made at the time, it would seem that "the accumulation of capital which has been progressively going on, since the conclusion of the last peace, and the difficulty of now investing money to advantage, has given rise within these few months to the formation of numerous trading companies throughout the country, with capitals of from £25,000 to half-a-million. In Edinburgh we have a new Banking Company, a new Insurance Company, a Wine Company, a Porter Brewery Company, an Equitable Loan Company, a Whale-fishing Company, Glass and Iron Manufacturing Companies, Cotton-Spinning Companies, and a variety of others which it would be tedious to enumerate. No sooner was the prospectus of a new scheme laid before the public than capitalists and speculatists ran eagerly and filled up the shares; and it was no uncommon thing to see these shares, in the course of a day or two, selling at a high premium. Much money was lost and won upon this kind of lottery." [1 Scots Magazine, March 1825. The bank alluded to above is, no doubt, the National Bank of Scotland. The insurance company might be the Scottish Union (now Scottish Union and National) Fire and Life, but is, more probably, the Standard Life ; but the Thistle, Equitable, and Commercial Marine were also local insurance projects of the time. The Wine Company of Scotland continued to exist until 1853, when the business was transferred to a private firm ; and the pawnbroking establishment spoken of occupies a respectable place, at the present time, on the local share list. Other companies alluded to are the Edinburgh, Glasgow, and Alloa Glass Company, Shotts Iron Company, Scottish Brewing Company, Scottish Wool Stapling Company, Waterloo Hotel Company, and Caledonian Dairy Company.] Of course, in London speculation was on a still greater scale. "It is estimated that the different new schemes on foot in London amount to 114, and the capitals to be more than £105,000,000."

These are enumerated as follows, viz.:—

2 This item is given as £13,950,000 in the original, but is, doubtless, a misprint.

The turn of the tide took place in the month of April. Prices of stocks and shares began to decline, calls were made on shareholders, the Bank of England bullion was ebbing away, and want of confidence began to manifest itself. In the three months, April, May, and June, nearly £3,000,000 of bullion were exported, mostly to the Continent, and it was estimated that the demands for exportation had reduced the stock of bullion in the Bank from £12,000,000, on 1st January 1824, to about £4,000,000 at the beginning of August 1825. [Scotsman newspaper, 3rd August 1825.] It was not, however, until later in the year that palpable evidences of a crisis showed themselves. Some private firms succumbed, then a few of the English country bankers suspended payment. Distrust became general; the panic seized London, and every one sought to save himself. On Saturday, 3rd December, rumours of difficulties in the firm of Pole, Thornton & Co., who, in addition to having an extensive London banking business, were agents for a large number of provincial and Scottish banks, gave point to the excitement. The Bank of England advanced £300,000 to the firm, and the catastrophe was deferred.

But on Monday the 12th, no longer able to stand the strain on their resources, Pole, Thornton & Co. stopped payment. Then the panic rose to a crisis. Stocks were unsaleable, and even Government Securities were not looked at. Every one who had coin hoarded it. For two days-12th and 13th December—the financial and commercial world was in a state of paralysis. On the 14th, the Bank of England came to the front. The directors gave assistance right and left to all who produced fair security. The crisis passed, and business men breathed more freely. The dread of universal ruin was past, and they began to estimate the resources of their neighbours with some degree of calmness. £1 notes of the Bank of England were sent into the country, to supply the want of specie; and affairs gradually assumed a quieter phase. The results of the crisis had, however, been very serious. Many bankruptcies had occurred, including some London and many provincial banks. It would appear, however, from the estimates of liabilities and assets, that the English provincial banks who failed had not been in so bad a condition as might have been expected. Subsequent investigation showed, moreover, that wherever the error lay, the note issues had comparatively little to do with their position.

In Scotland, as usual, the crisis had comparatively little immediate effect, although the subsequent depression was severe and lasting, as was strikingly indicated by the large amount of heritable property which was thrown on the market within a few months after the crisis. For the most part, business went on as before. The .Edinburgh banks seem to have experienced no discomfort. An exception must, however, be made in regard to Glasgow and the West of Scotland. There, if panic did not actually break out, much uneasiness was felt in commercial circles. Contemporary accounts represent the state of trade and manufactures as very bad. Several of the cotton mills were put on halftime, and others were verging on the same condition; while the country weavers were in vain seeking employment. The Bank of England sent a commission to Scotland, under which a sum of £300,000 was to be advanced in Glasgow. It was believed at the time, that the applications for assistance from this body were very few; and the action of the bank was, in some quarters, regarded somewhat ungraciously, with true Glasgow independence. The banks were not affected; indeed, it is stated that they, and especially the Royal Bank branch, under the management of Mr. J. Thomson, were very efficacious in allaying the threatened danger. But, although banking in Scotland, as a whole, escaped very easily, it was not unscathed. Three banks succumbed. One of these was the Caithness Banking Company of Wick, whose business was taken over by the Commercial Bank. Another was the Stirling Banking Company, with liabilities exceeding a quarter of a million sterling; but, although it was sequestrated, its eight partners paid in full. The worst case was that of the Fife Banking Company. It had a capital of £30,000, and might have done well. It was, however, grossly mismanaged, got into difficulties during this crisis, and stopped payment on 15th December 1825. It struggled on, however, under rearrangements, and did not finally close until 21st May 1829. Its affairs were not settled until 1850, owing largely to litigation carried to the House of Lords. The loss to the shareholders was enormous. Fourteen outstanding shareholders paid £5500 per share beyond the original amount. The liabilities were met in full.

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