The canny bankers of Auld Reekie

Bank of Scotland
August 30, 1996

British bank histories began to be written around the beginning of the 20th century as some important anniversaries were celebrated. Many of those early histories were very long, very sober, and tending to the antiquarian. They were, as Peter Mathias once wrote, "solid tomes as respectable and safe as the business they catalogued"; metaphors for their subject. A bank history typically was a book that once you put it down you could not pick up again - sometimes almost literally true. Richard Saville's book is certainly in the tradition of long (almost 1,100 pages), sober, and safe. But it is much more than that. Bank of Scotland is a fitting tribute on its 300th birthday to one of the most successful and respected financial institutions in British history.

Writing good bank history must be among the most difficult of historical enterprises for a variety of reasons. Banks live by their reputation, hard to acquire and easy to lose, and secrecy comes naturally. Disclosing anything that might lead to the identification of a customer, or in any way reflect badly on the bank, has been taboo. Banks have tended to treat outsiders with suspicion and when it comes to having their histories written they have relied heavily on their own employees. As a result the histories produced often had the appearance of being designed as retirement gifts, not so much for reading, more for a place beside the clock. Access to bank archives was for a long time restricted. Much of this has, however, been changing in recent years.

Bank histories are difficult to write for other reasons too. They are affected by and impinge upon so many different aspects of the economy, from the nature of the firm and its role to the relationship with money supply and macroeconomic policy. They engage with all manner of social, religious, cultural, and political factors. This particular history succeeds at a number of levels. It has benefited from the enlightened approach of Bank of Scotland's board, but the author has to be congratulated on covering an immense amount of material and territory of a variety of kinds, and on relating the business of banking to the wider world.

There are 30 chapters of roughly equal length in the book, whose text covers 820 pages. There are 16 appendices totalling more than 100 pages that provide in the main documents on the bank's foundation and early business. A statistical appendix of another 100 pages presents a range of balance sheet data across the centuries, and there is a 36-page bibliography. In addition there are 35 pages of introductory material.

The story is told largely in chronological chunks: "Foundation in 1695"; "Crisis 1696-97"; "From dearth to union 1697-1707"; and so on. But these blocks that trace the institution's behaviour in changing circumstances are interspersed with more general chapters such as, "Political and business history 17-44" , "The mind of Scottish bankers", "Profit planning and North Sea oil" which act as useful summaries of the state of knowledge on these subjects and provide some wider context within which the story of the bank can be placed.

The story is an interesting one. In the middle of the 17th century money and credit in both Scotland and England were very similar. The main problems were those of making payment in coin, a lack of remittance facilities, and the difficulty of bringing those with surplus funds into contact with those in deficit. The world was crying out for banks, and of course it got them. It was in the period between the restoration of the monarchy of Charles II in 1660 and the glorious revolution of 1688 that modern British banking has its origins. There are always antecedents but this was the period that mattered. All manner of schemes for banks were being designed and promoted, from land banks (sand banks to their detractors) to national banks; and it is the decade of the 1690s, the period in which what is described as the financial revolution took place, when the Bank of England was founded (1694) and the Bank of Scotland (1695).

There is no doubt that many of the changes in the late 17th century, not least the change in financial climate, were a result of the triumph of Parliament over the monarchy and the consequent improvement in the definition and security of property rights that the triumph contributed to ushering in. People were then able to operate in a less uncertain world. Savers were happier to place their funds, and investors to take risks, and nascent banks emerged to facilitate the transfer of one to the other, and perform a number of related functions.

Economic activity in Britain was beginning to change in the late 17th century, in both its pace and its nature. Differences between Scotland and England did exist and some of these mattered for the beginnings of modern banking. It is of interest to note that discussion in Scotland was focused on the needs of enterprise of one kind or another and on how a new institution could contribute to an alleviation of the perceived problems. The Bank of Scotland was such an institution. By way of contrast, in England the discussion had more to do with sorting out the currency and with the needs of state finance - the Bank of England was a quite different institution.

In the make-up of its board, the Bank of Scotland drew upon a wide array of people from all parts of the community. And ever since its foundation it has concerned itself with its role in the economic development of Scotland, "specifically designed to contribute to the broadly-based vision of national economic progress I".

None of this, however, was done with any concession to risk. Caution was the byword. Just as the Scots had invented the joint stock company (which form the bank took from the beginning) so they now invented the overdraft and hence the ability to lend at low risk for long periods by means of rolling over the overdraft. The Scottish concern with local industry is sometimes contrasted with English banking but the contrast should not be overdone as English provincial banks used the overdraft in a similar way at least from the 19th century. But it is worth noting that historians of Scottish banking have long resisted the notion that banks failed industry, whereas the common view in England is that English banks have.

What springs most readily to mind when the history of Scottish banking is mentioned is free banking - that is the unregulated nature of Scottish banking from its beginning until legislation in the British Parliament in 1844 brought it to an end. The era of unregulated banking when anyone could set up a bank and issue their own notes was one of considerable success and Scotland prospered with it. The Bank of Scotland was in many ways at the centre of this system as the senior bank leading either by precept or example, and it was important too in the development and promotion of the clearing arrangements. Saville does not confront this issue head on and ignores much of the literature on the topic. This is a pity since the subject of regulation has been a topic for discussion in recent years as the safety and stability of banking has again been under scrutiny following some spectacular failures in Britain and around the world. There is still much to be learned from these earlier examples.

One aspect of the older bank histories that led to some frustration for the reader was that they tended to end their account some long time away from the advertised finishing date. Safety again. That too has been changing with some recent histories and Saville's is a good example. Roughly equal space is devoted to the very recent past as to any other period, and while of course no secrets are given away we are better able to understand the continuity in the Bank of Scotland's approach to banking and its role in the domestic economy and to appreciate how the recent success has been achieved. It was not a matter of luck. The Bank of Scotland has lived by the same principles for a long time. What keeps coming through in all the diverse stories of the bank's behaviour in all the different circumstances it found itself operating in is its prudence. That comes as no surprise. The Scots may not have invented prudence but they have certainly been noted for it for a long time. But the extent of it is almost something else. When a columnist on the Financial Times called the Bank of Scotland the most boring bank in the United Kingdom, the bank happily accepted the compliment. This history gives an excellent feel for its extreme caution, discretion, secrecy and total propriety at all times. And it also brings out something that is again often associated with Scottish banking and that is a highly sceptical view of fashion. Saville has told a story of great complexity with a lightness of touch that will be envied by others in the business.

Forrest Capie is professor of economic history, City University.

Bank of Scotland: A History 1695-1995

Author - Richard Saville
ISBN - 0 7846 0757 9
Publisher - Edinburgh University Press
Price - £50.00
Pages - 1,089

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