The Scottish banking system is often referred to as one of the best in the world. Its functions, however, are essentially similar to those of the English system described above. The system consists of a few large banks with numerous branches, so that every little hamlet has the advantage of banking facilities. Interest is quite generally allowed on deposits, which fosters the habit of saving. The Bank of England's monopoly of note issues did not extend to Scotland, so the great joint stock banks developed the use of notes as currency. They are allowed to issue notes as low as 1, while the smallest Bank of England note is 5. The Scotch notes therefore have a wide circulation, but the advantages of check currency have greatly increased its use in recent years. The branch banks pay out only the notes of the parent bank which are redeemable at the head office, thus reducing the amount of gold needed. In common with the English and the Irish banks, the Scotch banks keep reserves in the Bank of England upon which they depend for gold in time of need.

A characteristic feature of Scotch banking, which at one time was fairly general and which still obtains to a considerable extent, is that of personal or cash credits. Under this system a borrower is able to obtain funds from the bank on the joint personal security of himself and one, two, or more friends. This cash credit gives him the right to draw upon the bank within a certain time for any amount up to the stipulated sum, the borrower paying interest only upon the amounts drawn and for the time they are kept. The cash credit has an advantage over the ordinary method of loaning by discount in that it is more economical to the borrower and gives the bank control of all funds not in active business use. The borrower pays into his account the cash which he receives from day to day, thus reducing his interest charge, and the bank is thus enabled to increase its loans in other directions. This system has enabled farmers and other small borrowers to obtain loans and has fostered the agricultural and commercial prosperity of the country. The indorsers or "cautioners," as they are termed, keep an eye on the borrower for whom they have vouched; they have the right to inspect his accounts, and if they find that his business is not being conducted properly they can withdraw their liability and authorize the bank to call in the loan. In the large industrial centers of Scotland loans are made more largely on collateral pledged as security, yet "the essential difference between Scotch and English banking is still this readiness of the former to take into consideration the personal standing of the-applicant rather than the stuff or paper which he brings to it as security for the advance."1

Another feature of the Scotch banking system is the rigid adherence among the banks to uniform rates of interest on deposits, on loans, and for other services. The small borrower of limited resources is thus able to get accommodations on the same terms as the largest firm. There is a tendency for large mercantile and manufacturing concerns to seek banking accommodations among the English banks where the opposite extreme of competition obtains and where consequently better rates can often be had.