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England note was not made a legal tender in Scotland, and, as a matter of course, payment of the notes of the Scottish banks could only, as heretofore, be legally tendered in coin of the realm.

The provisions of the Act of 1845 may be briefly described as follows: (1) it confines the right of issue to the then existing banks; (2) it continues to these banks the right of issue for the future, up to the amount of the issue in 1845, which was called the "Authorised Circulation"; (3) it extends this right to any additional amount of issue, without limit, but on condition that any bank exceeding the authorised circulation shall hold at its head office an amount of coin equal to the excess; and (4) it provides that a four-weekly average of the circulation at the close of business each Saturday shall be the amount taken to ascertain whether or not any bank has exceeded its authorised circulation. In working under the Act of 1845, the banks are able to conduct their business without requiring to hold any large amount of gold and silver beyond the amount representing the average excess over the authorised issue. This is a valuable result of the Act, inasmuch as it enables the banks, by keeping their till-money in their own notes, to extend their operations to small or remote places where under other circumstances it would not pay to do so.

The Act was passed at the time when the enormous advance in material prosperity for which this century is distinguished, had entered upon its second stage. Since then, year by year, the trade of the country has continued to increase, almost without a check, and the national wealth has been accumulated in a corresponding degree. Scotland has had her full share of the general prosperity in all departments of trade and industry; and her banks have naturally risen in proportion. The period is nevertheless marked by a decrease of their number. The same causes which had in former years led to the withdrawal of the private banking-houses, brought about a similar result in the case of the smaller joint-stock banks. These found themselves unable to compete with their more powerful rivals and therefore united with one or other of them. Two banks failed. In 1845, the number of banks in Scotland, as we have seen, was nineteen. It has now been reduced to ten. Since the passing of the Act, no new bank has been permanently established. Banking in Scotland as distinguished from issue, remains as it has ever been, free. But the power to issue is confined to those banks which were in existence when the Act came into force, and the issue of notes has always been an important if not an essential feature of Scottish banking. It is therefore not surprising that the attempts to found non-issuing banks have been unsuccessful, for such institutions are not in accordance with the habits or the likings of the people.

The two failures were those of the Western Bank of Scotland and the City of Glasgow Bank. In both cases, the disasters were brought

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about by so flagrant a disregard of the most ordinary rules of prudence as would have been fatal to any business enterprise; and the conduct of the responsible officials and directors was discreditable in the extreme. In the latter case they were punished criminally. In the course of the investigation, it was shown that for many years they had followed a system of re-discounting, and had, in the ordinary working of the business, resorted to other proceedings quite foreign to the established practice of banking in Scotland. And in the case of the Western Bank, a similar unfortunate result was produced by a similar unhappy departure from well-known rules and principles.

I have appended some figures illustrating the progress of banking in Scotland between the years 1845 and 1881, and I may be permitted now to refer briefly to a few of the more important results.

The number of banking offices in 1845 was 382. It is now 885. In 343 places, there are one or more bank offices. Of these 163 have one bank, 80 have two banks, 45 have three, and 55 have more than three. In Edinburgh and Glasgow alone there are 126 bank offices.

The deposits have increased from £33,000,000 in 1845 to £78,000,000 in 1881. It must however be borne in mind that in 1845 the channels of investment available to the general public were much narrower than they have become since. The deposits at the earlier period must therefore have represented a much larger proportion of the savings of the people than they do now. In 1875, when the deposits amounted to £76,000,000, the sums not exceeding £100 were 15.44 and not exceeding £1,000, 62.86 per cent of the whole. The percentage of the number of small depositors was very high, being no less than 69.65 not exceeding £100. The deposits per head of population were £22 13s. 10d. It may be inferred from these figures that a large proportion of the population keep bank accounts, and that the Scottish banking institutions have gradually attained to the position of being the banks of the people.

In 1845, the note circulation was £3,087,000; in 1881 £5,500,000. The increase is by no means commensurate with the growth of business during the period. This result may be attributed to a great extent to the extended use of cheques in settling money transactions, and to the prevailing practice of keeping a bank account, into which the bank-notes received by traders in the course of business are paid at the close of each day. The proportions of the notes in circulation are 34 per cent of £5 and upwards, and 66 per cent of £1 notes. All over the country, the banks exchange notes with one another daily, and the general balance of these transactions is settled twice a week by a payment in London. By this means, over issues are impossible. Clearing-houses for cheques and other documents are established in eight large towns. The

balances are settled at the same time as those of the note-exchanges. To shew how the system works, I have appended the rules observed in the Exchange Room and Clearing House in Edinburgh.

I have also thought that it may be useful to submit a few further details as to the progress of banking in Scotland during the period now under review, 1845-1881; and for these I beg reference to the appendix. (See pages 144-161.)

Though the establishment by the Scotch banks of branches in London and in the North of England is perhaps, strictly speaking, beyond the scope of this paper, it might be regarded as wanting in an important point if no reference were made to the subject. In the beginning of 1874, three branches were set down in Cumberland, by the Clydesdale Bank. This step was undoubtedly within their legal powers, but it was strenuously opposed by the English Country Banks on other grounds, and it led to the Parliamentary enquiry by the Committee of the House of Commons on Banks of of Issue, appointed in the following year. A few years previously the National Bank of Scotland and the Bank of Scotland had opened offices in London, and the Royal Bank, whose original charter confined its operations to Scotland, had obtained an Act enabling it to transact business in London. Much of the attention of the Committee was therefore devoted to the further question of the policy of Banks of Issue in Scotland being permitted to establish themselves in the Metropolis. Evidence of a very instructive kind was given on both sides, and the Committee finally agreed to the following report:-"Your Committee have examined a considerable number of witnesses, and have agreed to report the minutes of evidence to the House; but they have not had time to prepare a report thereon in the present session, and they consequently recommend their re-appointment next year." This recommendation was not carried into effect. The Royal Bank, the British Linen Company, the Union Bank, and the Clydesdale Bank, have since established offices in London; but no new branches have been opened by a Scotch Bank in the provinces of England.

The latest incident of importance as touching the Scotch banks, has been the adoption of the principle of limited liability by the unlimited banks, a change more immediately brought about by the effect of the disastrous failure of the City of Glasgow Bank. The principle of the limitation of liability combined with the formation of a reserve liability, has met with the approval of the shareholders of banks and of the public generally throughout the United Kingdom, and a large measure of practical effect has been given to it. In accordance with the opinions prevailing on the subject, the three old banking corporations of Scotland, under whose constitutions the liability of the proprietors is limited to their subscribed capital, applied to Parliament last session for powers under which they would have been enabled, if they had deemed it advisable, to create an

additional uncalled or reserve liability. The Government approved of the primary object of the desired measures, but proposed to attach certain conditions in the event of their being permitted to become law, the most prominent being the contemplated substitution of a state legal tender issue for the old bank note issue of Scotland. After a correspondence with the Treasury, in which the banks explained their grounds of objection to the proposals of the Government, they withdrew the bills.

In closing this paper, I may be permitted to refer in a few words to the causes which have led to the development of the Scottish banking system, and have gradually brought it to its present position.

Without doubt the chief cause has been that from their origin down to recent times the banks of the country carried on their business in complete freedom from legal restriction. Another important factor has been the general recognition of the joint-stock principle in connection with the institution of banking, also from its beginning. It has been explained that with the exception of the regulations affecting the note-issues, imposed in 1845, the business of banking in Scotland has always been free, but that notwithstanding, the number of banks in the kingdom has for many years been on the decrease. This result has been due to the superiority which the joint-stock system of banking, with large capital, has asserted in Scotland. The banks first instituted were formed on that principle, which gradually grew till it became predominant. Such a result was impossible in England, for joint-stock banks were illegal in that part of the kingdom till 1826.

There are other causes of a minor kind which have had their influence in moulding the institution into its present shape. The history of banking in Scotland has been marked by few failures. From 1745 to 1845 the number was twenty-three. Since 1845 two failures have taken place. All the banks which failed, having a greater number of partners than nine, have paid their liabilities to the public in full, with one exception. The exception is the City of Glasgow Bank, but there can be no doubt that its obligations will also be fully met within a short time.

Branch banks are established everywhere, the note system admitting of till-money being provided with trifling expense. Banking facilities are thus offered to the smallest traders and transactors all over the country. Interest is allowed on sums deposited, without exception. No commission is charged upon current accounts, on the sums withdrawn or otherwise, and no stipulation is made as to the maintenance of a certain balance at credit, whether other facilities are given or not. All deposits are payable on demand.

As a general rule, only a small part of the deposits of an agricultural neighbourhood can be advantageously lent there. The

Scotch banks are favourably situated in being themselves able to employ these funds in the large towns through their own agencies, and having branches in all the centres of industry they are not liable to the risks arising from the exclusive employment of money in one district.

The old cash credit system, originally fostered by the note issues, is still largely employed, and continues to lead to the rise of men of good character but small means in all branches of industry.

The bank-note issues have never been discredited in any serious degree. They were not depreciated during the suspension of cash payments in England at the beginning of the century. When the two great failures since 1845 occurred, the notes of the bankrupt banks were taken up by the other banks, and the gap in the circution was at once filled up with their notes.

Lastly, the rate of banking profit in Scotland has been comparatively moderate. In the case of the Bank of Scotland, which may be taken as a fair specimen, the average dividend and bonus paid since 1845 has been at the rate of £9. 178. 10d. per cent per annum, and going back to its origin, the average rate since 1699, when the first dividend was paid, to the present time, has been £9. 138. 9d.

If your time had permitted, these points might all have been further illustrated from the events and incidents of the period which I have attempted to review, but it is necessary that this paper should now be brought to a conclusion. I have en

deavoured, in fulfilment of the promise made at the outset, to confine myself to a statement of a few of the leading events in the history of banking in Scotland, which have led to its development or evolution into the position it now holds as one of the great institutions of the country. The pages of its history are not without their dark blots, and its development has been accompanied by many a painful pang. But the system, viewed as an institution, may be said, whether as regards its past or its present, to be without a parallel, and it has certainly been of great use to Scotland. Its authors and owners have also been rewarded with a fair return in the way of profit. These general results may justly be attributed to the fact that the people have given it their confidence and support, and that, on the other hand, it has, on the whole, always been well suited to their circumstances and wants.

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