CHAPTER XI.

HISTORICAL SKETCH OF THE RISE AND PROGRESS OF BANKING IN SCOTLAND.

1. The Bank of Scotland is the first instance in the world of a private joint stock bank, formed by private persons, for the express purpose of making a trade of banking, dependent on their own private capital, and wholly unconnected with the State. It differed in kind from any of the other banks existing at that time. The successful institution of the Bank of England led to a project being formed to establish a Bank in Scotland. A merchant of London, Mr. John Holland, was the author of the scheme, and he got eleven Scotch merchants to join him. They obtained an Act of the Scotch Parliament on the 17th July, 1695, authorising the Crown to grant them a Charter of Incorporation. The principal provisions of this Act are as follows1

I. The joint stock was to be £1,200,000 Scots, or £100,000 sterling, and authorises certain persons to receive subscriptions for not less than £1,000 Scots (£83 6s. 8d.), nor more than £20,000 Scots (£6,666 13s. 4d.) for each person, with a deposit of 10 per cent.

II. They were allowed to lend on real or personal security, at not more than 6 per cent.; and, on failure of payment, to sell or dispose of the security publicly.

III. They were allowed to transfer their stock freely, or by

will.

IV. No dividend to be made, but by consent of general meeting.

V. The joint stock to be free from all taxes affecting money for 21 years from that date.

VI. It was declared to be illegal for any other Company to set up banking for 21 years.

Acts of the Parliament of Scotland, rol. ix., p. 494.

VII. Various legal privileges were granted for the more speedy and effectual recovery of debts due to the bank.

VIII. Prohibits any sum to be withdrawn from the joint stock.

IX. Prohibits the Company, directly or indirectly, from using or employing the joint stock of the Bank, or any of its profits, in any other trade or commerce, except the trade of lending and borrowing money upon interest, and negotiating bills of exchange.

X. Prohibits the Company from purchasing land, or heritages, or advancing money to the Government, upon the anticipation of any sums to be granted by Parliament, except only those particular ones upon which a credit of loan should be authorised by Parliament, under the penalty of forfeiting triple the amount, of which one-fifth to the informer.

XI. All foreigners who subscribed to the joint stock, were ipso facto naturalised to all intents and purposes. It was also provided that two-thirds of the stock must always belong to persons residing in Scotland. The Scotch subscription of £800,000 Scots (£66,666) was begun in November, and filled up at the end of December, 1695. The English subscription of £400,000 Scots (£33,333) was taken up in one day in London, a great part by Scotchmen. As the Scotch at that time were supposed to know nothing about banking, it was also provided that for a certain number of years the Governor and twelve Directors should be English, and the Deputy-Governor and twelve Directors should be Scotch. However, it was soon found that the Scotch were such good managers, that this arrangement was changed, and all the Directors were Scotch, and thirteen trustees were chosen to manage the English business and affairs in London.

2. No sooner was the Bank fairly established, than, in 1696, the African Company attempted to set up the trade of banking, in defiance of the Bank's privilege. This was the celebrated Darien Company, which was organised by William Paterson, who was one of the founders of the Bank of England. Mr. Holland was Governor of the Bank, but so little was it thought of, that it did not venture to vindicate its privileges against the African Company, for which there was a national phrenzy, and

which afterwards ended so sadly. The Bank was obliged to content itself by strengthening its position by calling up twotenths of its capital.

The African Company soon, however, burnt its fingers with banking, as, in order to rival the Bank, they advanced their notes with great imprudence to several of their own shareholders and others, and sustained great losses, which made them stop. The Bank then began the business of exchanges, but, finding that they could not compete with private merchants, gave it up. In 1696, they opened branches at Glasgow, Aberdeen, Dundee, and Montrose; but not finding them to pay, withdrew them. In May, 1698, the rivalry of the African Company being at an end, the directors repaid the two-tenths of capital last called up, as being more than necessary for their business.

The Bank at first received no deposits from the public; its business consisted in circulating its own notes upon the credit of the subscription that was paid in. These notes were for £100, £50, £20, £10, and £5. It is disputed when they began to issue £1 notes, for, while a pamphlet, published in 1728 on their behalf, says that they began to issue them in January, 1699-1700, Mr. Kinnear, a director of the Bank, stated to the Committee of the House of Commons that, though many proposals were made to them to circulate "tickets" or "tokens" of £1, they had always hesitated to adopt so novel an experiment till 1704. Which authority is right we have no means of deciding. In 1701 a great fire destroyed the Parliament Close, in which the bank was, but the cash and all the effects were safely removed into the Castle by the Earl of Leven, who was Governor of both.

In December, 1704, soon after, as it would appear by one account, that they had issued £1 notes, a rumour was spread all over the kingdom that the Privy Council were going to raise the value of the coin, which caused a run upon the Bank, and at last it was obliged to stop payment. A meeting of the proprietors was held, who declared that all their notes should bear interest until they were paid. The directors also requested the Privy Council to appoint a Committee to examine their books. They reported that the Bank was in the most sound and flourishing condition, and their notes then passed without de

preciation. The directors made a call of one-tenth, and in less than five months paid off all their notes with interest.

By the Act of Union between England and Scotland, it was stipulated that the coinage of Scotland should be reduced to uniformity with that of England, and the loss or deficiency to private individuals made good out of the Equivalent fund. (Art. xv.) The Bank assisted this operation by receiving all the old money and giving their own notes, or new money, in return, receiving a commission of half per cent. This was successfully accomplished without any disturbance.

In September, 1715, the rebellion broke out, which immediately caused a run upon the Bank, the directors themselves urging it on, that the money might not fall into the hands of the insurgents. They then stopped, retaining all the money belonging to the Crown, which was about £30,000, which they lodged in the Castle. They then gave notice that all their notes should bear interest, as had been done in 1704. In May, June, and July, 1716, they were all called in and paid. In this year the monopoly of banking granted by their charter expired, and no steps were taken to renew it.

It appears that up to this time the profits of the Bank were enormous. A rival pamphlet states that the dividend was 35 40, and 50 per cent., and, accordingly, as we may well suppose, these profits attracted rivals. A cry was got up against them, that they were too niggardly in advancing loans, that they exacted too high interest, and that the concern was altogether too small.

4. In December, 1719, proposals were made to them to unite with the proprietors of the Equivalent fund, to the amount of £250,000, so as to increase the capital to £350,000, and share the annual grant of £10,000 (being four per cent. on the amount) in the proportion of two-sevenths and five-sevenths. But, as the Bank had only one-tenth paid up, the proprietors of the Equivalent fund were to draw out of the Bank, as might be agreed upon, nine-tenths, or £225,000, in notes, so that there might then be a capital of £35,000 to bank upon.

The bank replied that-1st, They had no power by their Act to amalgamate with the Equivalent, as they were limited to £100,000 sterling; 2ndly, That they would not unite at par

with the Equivalent at four per cent., while their own stock was worth at least ten per cent.; 3rdly, That the stock of the Bank was large enough for the country; and, if they wanted it enlarged, they could do it themselves by calls on their proprietors. They also gave other calculations, shewing the absurd nature of the proposals.

No sooner were the advances of the Equivalent proprietors repulsed, than another set of persons began another rough wooing, to thrust themselves into a union with them. The Edinburgh Society, formed on a pretended plan of insuring against fire, tried to force a junction with them, and, being defeated in this, they tried to get up a run upon them. They got together £8,400 of their notes, and spread a report of a run. This, however, failed; and shortly after the Bubble Act passed, by which the society found that they were an illegal company, and were obliged to dissolve themselves. The London Assurance Company then "proposed" to them, but met with a similar refusal.

5. At the time of the Union, a considerable number of persons, both civil and military, were creditors of the State, and the Equivalent sum stipulated in the Act of Union was not sufficient to discharge their claims. In 1714, they obtained an Act of Parliament, constituting their debts, but no Parliamentary provision was made to pay it till 1719, when £10,000 was set apart for that purpose, to be paid annually, in preference to all other claims. The Act of 1719 empowered His Majesty, by letters patent, to incorporate the proprietors of this debt into a body politic and corporate-a MONTE-with powers to do and perform all matters appertaining to them to do, touching or concerning the said capital sum; and the yearly fund, payable in respect thereof, as His Majesty, by the said letters patent, should think fit to grant. In pursuance of this act, the proprietors, who included persons in all ranks of the State, were incorporated in 1724; and, by the same letters patent, the King agreed and covenanted with the corporation that he would, from time to time, grant them such other powers, privileges, and authorities, as he lawfully might.

This was the body of persons whom we have seen attempt to force themselves on the Bank of Scotland. When they were repulsed by that body, they determined to apply to the King to