Assets.

The following abstract of balance sheets from 1870 to 1877 is taken from seven banks, viz., Bank of Scotland, Royal Bank, British Linen Company, Commercial Bank, National Bank, Union Bank, Clydesdale and City of Glasgow Bank:

These tables show(1) That in every case but two there has been an increase in the note circulation of £1,000,000.

(2) An increase of deposits in twenty-four years of £34,000,000.

(3) There has been a decrease in acceptances from £4,110,000 to £2,980,000.

(4) The net profits of the Scotch banks show a decline, as is the case with the English banks.

There was a decrease in deposits in consequence of the failure of the City of Glasgow Bank. This is shown from the following statement: May 18, 1878......£78,000,000

October 19, 1878.....78,000,000

May 17, 1879......67,000,000

The latest reports of the banks show, however, that the deposits are steadily increasing.

Another feature of Scotch banking was the allowance of interest on current accounts, which somewhat differs from the procedure of the majority of English banks. Interest was formerly allowed on current account by some of the English banks, but the system was abandoned because with increasing competition it was found to be unprofitable.

In 1863 the Scotch banks fixed the rate for daily * 0.000's omitted from columns 2 to 9 and 000's from column 10, thus £8.77 = £8.770-000. balances from 1 1/2 to 4 per cent., and for minimum balances from 2 to 4 1/2 per cent.

The interest for advances from 1822 to 1864 was never below 4 per cent: 1847 = 5 1/2 per cent. 1863 = 7 per cent.

1856 = 6 per cent. 1864 = 8 and 9 per cent.

1857 = 6 1/2 per cent.

An account of the progress of the Scotch banks would be incomplete without reference to the great banking disasters in 1857 and 1878.

It was thought that banking in Scotland was safe and prosperous; in fact, some believed that the failure of banking institutions in that country was impossible. This delusion was dispelled by the great failures of 1857 and 1878. These great disasters showed that Scotch bank directors could act in a reckless manner like directors of other companies. The failures of the Western Bank of Scotland in 1857, and the City of Glasgow Bank in 1878, were very similar in character. In 1857 the Western Bank lent to four or five private firms a sum equal to its capital. This bank had also an agency in New York, and a large proportion of its deposits was sent there to support all kinds of speculation. When, however, speculation in America experienced a sudden check, the Western Bank found itself in the possession of a large amount of worthless securities. The bank was unable to meet its liabilities, and consequently had to close its doors. It was ascertained that the capital of £1,500,000, the reserve fund of £227,000, and £916,864 6s. 8d. in addition were lost. The failure of such a large bank caused a run upon all the others, but by giving credit and paying the notes of the bankrupt bank it was soon stopped.

The City of Glasgow Bank suspended payment for a short time in 1857, but judged by later events it would have been better if it had never opened its doors. The failure of this bank in 1878 was very disastrous, because the English as well as the Scotch banks felt the effects of the suspension.

Shareholders of banking institutions in both countries saw how easy it was to be deceived. The accounts of the Glasgow Bank had been falsified from the year 1873. The liabilities of that bank were £2,000,000 more than stated in the balance of 5th June, 1878, whilst the assets were nearly £5,000,000 less, namely: -

Deducting the capital and reserve, £5,190,983 l1s. 3d. had to be provided by the shareholders of the bank.

The Act of 1845 stated that the excess in the circulation above the authorised issue should be provided for by gold, but for some time the Glasgow Bank had made false returns to the Government, because it did not hold sufficient gold to represent the excess.

No doubt Sir Robert Peel intended that the gold held should be a cover for the note issue, but it seems that the Act of 1845 was a failure in this respect. The other banks promptly met the disaster by paying the notes of the Glasgow Bank, and also by giving every facility to those who had money locked up in that bank. The business of the City of Glasgow Bank was conducted in a very bad manner. The directors lent large sums of money to their own firms; no less than £5,800,000 was lent to four commercial houses in which they were interested. They also supported rotten concerns which every day were becoming more insolvent, and issued bills supposed to be drawn in Melbourne but in reality at Glasgow. As a last resource they invested large sums of money upon land in Australia and New Zealand, thus hoping to retrieve their position. It is important to remember that when the City of Glasgow Bank's acceptances were refused in London, the bank was really doomed and its doors were closed within a week. This shows the danger that may arise from any bank having too many acceptances in the market. Although this great failure depreciated the value of bank shares, and also caused a large withdrawal of deposits, yet it was not without its advantages, because it was the means of clearing away insolvent houses.

Banking was brought prominently before the public, and many important questions relating to that subject were discussed with a view to certain reforms being carried out.

The opening of London offices by Scotch banks has excited a great deal of interest in this country.

The following Scotch banks have opened London offices:-

It has been stated that the Scotch banks have not shown their usual prudence by opening offices in London for the following reasons: (1) They had in their own country a prosperous and sound business, with profits and dividends considerably increasing.