Practically at the present time every large transaction in the United Kingdom is settled by cheque, that is, by a series of ledger transfers, notes and specie being but the small change by which the fractional amounts are paid. A large proportion of these transactions are arranged through the operation of the London Clearing House. This is facilitated by the fact that every bank in the United Kingdom has an agent in London.
The annual circulation shown by the London Clearing House is more than £12,000,000,000. No one asks what stock of gold is held by the bank on which the cheques are drawn, or what the bank itself keeps in reserve. The whole is taken in faith on a well-founded trust. It is the most easily worked paper circulation and circulating medium in existence. Like the marvellous tent of the fairy Paribanou, it expands itself to meet every want and contracts again the moment the strain is passed. (See the article by R. H. Inglis Palgrave on "Gold and the Banks," Quarterly Review, January 1906.)
If we add to the returns of the London Clearing House those of the clearing houses in the large towns of England, Ireland and Scotland, and the numerous exchanges which occur daily, and the large number which the different offices of banks with a great many branches settle among themselves, and the number drawn by one customer of a bank and paid to another, we may form some notion of the vast amount of the yearly turnover in cheques. This may be roughly estimated to be at least twice as great as that registered by the London Clearing House. The earliest authentic statement as to the clearing is found in the Appendix to the Second Report, Committee of House of Commons, Banks of Issue (1841).
In 1839 the figures of the London clearings were
In 1840 " " " "
In 1899 " " " "
In 1900 " " " "
In 1906 " " " "
In 1695, shortly after the establishment of the Bank of England, Scottish banks. the Scottish parliament passed an act for the establishment of a public bank. Amongst the first names is that of Thomas Coutts, a name still commemorated in one of the most substantial banks in London. The terms of the establishment were more favourable than those connected with the establishment of the Bank of England, for they obtained the exclusive privilege of banking for twenty-one years without giving any consideration whatever. It may have been the natural caution of the country, or the fact that William III. was then king, which led to the Bank of Scotland being prohibited under a heavy penalty from lending money under any circumstances to the king. It is the only Scottish bank established by act of parliament. The directors began at a very early period to receive deposits and to allow interest thereon, also to grant cash credit accounts, a minute of the directors respecting the mode of keeping the latter being dated so far back as 1729.
Though the system of branches forms now so marked a feature of banking in Scotland, a good many years had to pass before they obtained any hold. It was not till about the year 1700 that the directors of the Bank of Scotland established branches at Glasgow, Aberdeen, Dundee and Montrose, but so little encouragement was given to these branches, the expenses far exceeding the profits arising from them, that the directors resolved to close them. In 1731 another attempt was made, and agencies were established at Glasgow, Aberdeen and Dundee. But after a trial of two years they were discontinued. It was not till 1774 that branches were again established by the bank.
Soon after the establishment of the Bank of Scotland the directors began to issue notes, or, as they were then called, bills or tickets, for £100, £50, £20, £10, and £5. In 1704 £1 notes were issued for the first time. In 1727 the Royal Bank of Scotland was established by a charter of incorporation, - which granted them "perpetual succession and a common seal." There was a great rivalry between the two companies. The British Linen Company was incorporated in 1746 for the purpose of undertaking the manufacture of linen, but by 1763 they found it best to confine their operations to banking transactions. This bank also was incorporated by charter.
The note circulation was always an important item in the Scottish banks. Thus in the case of the Bank of Dundee, the receiving money from the public did not commence till 1792. Up to that time the whole business of the bank from 1764 onwards, twenty-eight years in all, had consisted in its issue of notes, which had varied from about £23,000 to £56,000. The Bank of Dundee was amalgamated with the Royal Bank of Scotland in 1864, when its deposits amounted in round figures to £700,000 and its note circulation to £41,000. After 1792, the money deposited with the banks in Scotland rapidly increased, but the habit of hoarding savings in a chest up to amounts of £10 or £20 continued to a much later period (History of the Dundee Banking Co.).
Private banking never appears to have had any considerable hold in Scotland. In 1819 eight private banks were in existence. These had all disappeared by 1844. In 1906 there were only ten banks of issue in Scotland, which practically carried on the whole business of the country. There were two other small banks established comparatively recently. These ten banks had, in 1906, 1180 branches.
The history of the growth and expansion of Scottish banking since 1826 is, as far as can be traced, as follows: -
Number of Offices.
167 = 1
380 = 1
585 = 1
790 = 1
1,180 = 1
Against every note issued in excess of the limit allowed by the acts of 1844-1845, gold has to be held at the offices of the issuing banks in Scotland and Ireland. The amount of the specie to be thus held was, as explained by Sir Robert Peel in his speech of the 25th of April 1845, to be ascertained by the average amount of the note-issue for four weeks preceding. The object of the holding of this amount of specie by the bank which issued the notes was designed by Sir Robert Peel to cause the circulating medium of the country, being partly of notes and partly of specie, to fluctuate in the same manner as if it had been a metallic circulation only. The specie held in Scotland and Ireland against the note-issue is not a special security for the note circulation, but is placed in the banks there for this purpose. The influence ascribed to the working of the note circulation in the earlier part of the 19th century accounts for this legislation, which, as Sir Robert Peel stated in his speech of the 6th of May 1844, was intended to "ensure the uniform equivalency of bank notes to coin." It is not applicable to the present position of the circulating medium of the United Kingdom, which now consists mainly of a circulation of cheques.