IN this section we shall consider the following topics :-
I. The Law of Scotland with reference to Banking. II. A Comparison between the Banks of Scotland and those of England. III. The Laws of the Currency with reference to Scotland. IT. Those operations of the Scotch Banks that refer to the system of Cash Credits, Interest on Deposits, and the settlement of the Exchanges.
The general provisions of the law of Scotland bearing upon this subject are calculated to promote the solidity of banking establishments.
1. There is no limitation to the number of partners.
2. The private fortune of every partner is answerable for the debts of the bank.
3. Land, as well as other property, may be attached for debt.
4. In Scotland all Land is registered; so it is easy for any individual, by referring to the records, to ascertain what landed property is possessed by the partners of the bank, and also whether or not it be mortgaged. The following is the language of the Report of the Committee of the House of Commons, appointed in 1826 to consider the expediency of abolishing all notes under £5 :-
"There is no limitation upon the number of partners of which a banking company may consist; and, excepting in the case of the Bank of Scotland, and the two chartered banks, which have very considerable capitals, the partners of all banking companies are bound jointly and severally, so that each partner is liable to the whole extent of his fortune for the whole debts of the company.
"A creditor in Scotland is empowered to attach the real and portable, as well as the personal estate of his debtor, for payment of personal debts, among which may be classed debts due by bills and promissory notes; and recourse may be had for the procuring payment to each description of property at the same time. Execution is not confined to the real property of a debtor merely during his life, but proceeds with equal effect upon that property after his decease.
"The law relating to the establishment of records gives ready means of procuring information with respect to the real and heritable estate of which any person in Scotland may be possessed. No purchase of an estate in that country is secure until the seisine (that is, the instrument certifying that actual delivery has been given) is put on record; nor is any mortgage effectual until the deed is in like manner recorded.
"In the case of conflicting pecuniary claims upon real property, the preference is not regulated by the date of the transaction, but by the date of its record. These records are accessible to all persons; and thus the public can with ease ascertain the effective means which a banking company possesses of discharging its obligations, and the partners in that company are enabled to determine with tolerable accuracy the degree of risk and responsibility to which the private property of each is exposed.
"There are other provisions of the law of Scotland which it is not necessary minutely to detail, the general tendency of which is the same with those above men-tioned."
"The following Acts of Parliament have been passed in reference to banking in Scotland:-
"The first notice of banking in Scotland which occurs in the statute-book, is an Act of King William the Third, passed in the year 1695, under which the Bank of Scotland was established. By this Act an exclusive privilege of banking was conferred upon that bank, it being provided, 'that for the period of twenty years from the 17th July, 1695, it should not be lawful for any other person to set up a distinct company or bank within the kingdom of Scotland, besides those persons in whose favour this Act was granted.' No renewal of the exclusive privilege took place after the expiration of the twenty-one years.
"The Bank of Scotland first issued notes of 20s. in the year 1704; but the amount of notes in circulation previous to the Union was very limited.
"The Bank of Scotland continued the only bank from the date of its establishment in 1695, to the year 1727.
"In that year a charter of incorporation was granted to certain individuals named therein, for carrying on the business of banking under the name of the Royal Bank; and subsequent charters were granted to this establishment, enlarging the capital, which now amounts to one million and a half.1
" An Act passed in the year 1765, is the first and most important Act of the Legislature which regulates the issue of promissory notes in Scotland.
1 The capital of the Royal Bank of Scotland now amounts to two millions.
"It appears from its preamble, that a practice had prevailed in Scotland of issuing notes which circulated as specie, and which were made payable to the bearer on demand, or payable at the option of the issuer at the end of six months, with a sum equal to the legal interest from the demand to that time.
"The Act of 1765 prohibits the issue of notes in which such an option as that before mentioned is reserved to the issuer. It requires that all notes of the nature of a bank note, and circulating like specie, should be paid on demand; and prohibits the issue of any promissory note of a sum less than 20s.
"With respect to the issue of promissory notes in England, an Act was passed in 1775, prohibiting the issue of any such notes under the sum of 20s. And in the year 1777, restraints were imposed bylaw on the issue of notes between the sum of 20s. and £5, which were equivalent to the prohibition of such notes circulating as specie.
"In the year 1797, when the restrictions as to payments in cash were imposed upon the Bank of England, the provisions of the Act of 1777, with regard to the issue of notes between 20s. and £5, were suspended. By an Act passed in the third year of his present Majesty, the suspension was continued until the 5th of January, 1833; but now stands limited, by an Act of the present session, to April 5, 1829."
"The general result of the laws regulating the paper currency in the two countries is this :-
"That in Scotland, the issue of promissory notes payable to bearer on demand for a sum of not less than 20s. has been at all times permitted by law, nor has any Act been passed limiting the period for which such issue shall continue legal in that country. In England, the issue of promissory notes for a less sum than £5 was prohibited by law from the year 1772 to the period of the bank restriction in 1797. It has been permitted since 1797; and the permission will cease, as the law at present stands, in April, 1829."
The Act which now regulates the issue of bank notes in Scotland is 8 & 9 Vict. c. 38, passed in the year 1845.
By this Act, the power of issuing notes is confined to those banks that issued notes in the year preceding the 1st day of May, 1845. And the amount to which each bank may issue is not to exceed the average amount of notes it had in circulation during the year ending the 1st of May, 1845, and the amount of gold or silver coin it may at the time have in possession at the head office or principal place of issue, in the proportion that the silver shall not be more than one-fourth the amount of the gold.
This Act was to come into operation on the 6th day of December, 1845. After which day each banker is to make weekly returns to the Stamp Office of his notes in circulation, and of the gold and silver coin on hand; and the averages of four weeks are to be published in the "London Gazette," with a certificate from the commissioner as to whether the bank has held the amount of coin required by this Act.
All banks, except the Bank of Scotland, the Royal Bank of Scotland, and the British Linen Company, are required to send to the Stamp Office, between the 1st and 15th days of January, inclusive, the names of all their partners, which shall be published by the 1st day of March following, in some newspaper circulating within each town or county respectively in which the head office or principal place of issue of such bank is situated.
Bank of England notes are not to be a legal tender in Scotland.
In the Acts of Parliament passed in 1844 and 1845 for Regulating Banks of Issue in England and in Scotland, we may observe the following differences :-
1. The maximum of the circulation in England is the average of the twelve weeks ending the 27th of April, 1844. The maximum in Scotland is the average of the year ending the 1st day of May, 1845.
2. The English banks are not, under any circumstances, allowed to exceed the fixed limit. The Scotch banks are allowed to exceed their limit, provided they hold in their coffers at the head office an amount of gold and silver equal to such excess.
3. In England, should two joint-stock banks of issue effect a junction, the circulation of one of them would be forfeited,1 and the united bank could issue only to the amount which the other bank had previously issued. In Scotland, the united bank is allowed to issue to the amount of the two circulations added together.
4. In Scotland, notes under £5 are still permitted. In England, notes under £5 are still prohibited.