The Bank of Scotland was the first bank formed in that country. It obtained an Act from the Scotch Parliament on 17th July, 1695, which authorised the Crown to grant a Charter of Incorporation. Unlike the Bank of England it was not connected with the State, although it possessed a monopoly of banking for twenty-one years. This bank did not at first receive money on deposit, and its profits depended entirely upon the note circulation.

The next bank formed was the Royal Bank of 1727. Its promoters complained that the Bank of Scotland charged too high a rate of interest for loans; that it was hostile to the House of Hanover; that it was very exacting with regard to the securities required, and that loans on its own stock were not allowed.

The formation of this bank abolished the monopoly of the Bank of Scotland.

The British Linen Company was formed in 1746 for carrying on the business of linen manufacturers as well as of banking. The former business was soon, however, relinquished.

The next bank formed was the Ayr Bank. Its promoters supposed that they could issue notes to an unlimited extent, but this popular delusion was soon dissipated. After issuing £800,000 of paper money, the bank was unable to pay the notes on presentation. In the year 1772 it stopped payment, and the effect of its suspension was so great that only three of the then existing private banks survived the panic.

Although there are now no private banks in Scotland, yet there were eight in existence in 1819.

The following table shows the increase in the number of banks and branches:-

The number of offices in proportion to the inhabitants is larger in Scotland than in England or Ireland. Thus: -

Although the facilities for banking are greater in Scotland than in England, yet on the other hand the working expenses must tend to lessen the profits of the banks.

The great success of Scotch banks is supposed to be due to the following circumstances, viz.: 1st, banking in that country was not originally a monopoly, although the privilege of note issue made it so at a later date; 2nd, it was treated as an ordinary business in which the State was only indirectly concerned; and 3rd, the only restrictions were, that the banks should confine themselves to banking.

The Act of 1845 relating to Scotland stated that no new bank of issue should be formed in that country, and this practically prevented new banks opening, because the issue of notes is an essential part of Scotch banking. Since the Act was passed, seven banks of issue have ceased to exist, viz., Aberdeen Bank, Dundee Bank, Eastern Bank, Edinburgh and Glasgow Bank, Perth Bank, Western Bank, and City of Glasgow Bank.

We have already noticed that the issue of £1 notes was allowed by the Act of 1845 and also that the Scotch circulation has far exceeded the authorised limit. This Act also prevented other banks from being formed, and consequently we have large institutions with correspondingly great liabilities. If at any time a bank failure should occur in the country the effect would be most disastrous. No doubt there would have been more banking institutions in Scotland if the existing banks had not practically a monopoly.

Another feature of Scotch banking is the system of deposits. Small amounts are received, and consequently the banks assume the character of savings banks for the country. Banks are able to take these small amounts partly in consequence of a high rate of interest ruling in Scotland. The great prosperity of the Scotch people has, however, been attributed to the system of deposit banking.

This concentration of capital at places where it is most required must materially benefit any country and increase its wealth.

In Scotland there are more shareholders in banks in proportion to the inhabitants than in England or Ireland. The Scotch people have great confidence in their banking institutions.

For example:-

By this means runs on the banks have been prevented in times of panic and commercial disaster.

The people are, therefore, more directly interested in the banks, and consequently in times of panic and commercial disaster do not lose confidence.

The system of cash credits is another peculiar feature of Scotch banking. Any person who can obtain two sureties who are willing to give a bond, is allowed to draw against the amount placed to his credit at the bank. The sureties have a right to inspect the bank books in order to see that the account is in strict accordance with the bond.

The progress of money lodged has not been so rapid as in England. Thus: -

The following is a list of the banks now in existence: -

The Bank of Scotland, the Royal Bank and the British Linen Company are chartered banks and limited in their liability to the public, their corporate property being alone liable for debt. The remaining banks are limited.

The total liabilities of these banks amount to £120,337,697 and their cash and Government securities to £53,200,000.

The ratio of cash in hand and money at call is about 17 1/2 per cent.

The note circulation of the Scotch banks is equal to about 50 per cent, of their capital and reserve fund.

That the Scotch people are prudent, saving, and industrious is shown by the cash deposits, which amounted a few years ago to £90 per head of the adult male population. This is a far greater proportion than in England or Ireland.

The Scotch banks are to be commended for publishing a complete balance sheet, which enables us to show clearly the progression of banking in that country :11 Banks. Liabilities.

Assets.

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capital, balance sheets, bank act, banking, bills of exchange, branch banking, rate fluctuations, commerce, commercial crises, currency, joint-stock banking, money market, note circulation, banking system, private bankers, rate of discount, finance