A A 1 1 8 6 8 9 UNIVERSITY OF CALIFORNIA AT LOS ANGELES SCOTTISH BANKINa DURING THE PERIOD OF PUBLISHED ACCOUNTS ABERDEEN UNIVEESITY PRESS. SCOTTISH BANKING DUEING THE PEEIOD OF PUBLISHED ACCOUNTS 1865-1896 BY ANDREW WILLIAM KERR, F.S.A., Scot. AUTHOR OF "HISTORY OF BANKING IN SCOTLAND" LONDON EFFINGHAM WILSON 11 ROYAL EXCHANGE, E.G. 1898 TO Monsieur GUSTAVE FRANgOIS, DOUAI, FRANCE, IN RECOGNITION OF HIS EVER ACCURATE AND APPRECIATIVE EXPOSITIONS OF BRITISH ECONOMIC INSTITUTIONS TO CONTINENTAL READERS, AND AS A TOKEN OF LONG-CONTINUED PERSONAL FRIENDSHIP AND ESTEEM, THIS VOLUME IS DEDICATED BY THE AUTHOE. ^88029 PREFACE. The principal portion of the following pages was recently contributed to the Glasgow Herald as a series of articles entitled " Thirty Years of Scottish Banking". These articles are now, through the courtesy of the proprietors of that influential journal, republished in collected form, after re- vision, together with the statistics and other data on which they were based ; in the hope that they may be useful to members of the banking pro- fession and to others who are interested in economic subjects. If the information annually supplied by the banks in their reports is to be properly utilised, it is necessary that retrospects be taken from time to time ; so that, by contrast of period with period, the value of past policy may be accurately gauged. The writer is fully conscious of the deficiencies of his execution of this work ; and he will rejoice to see his essay supplemented by competent stu- dents of l)anking ex[)erience. He has, however, the satisfaction of feeling that he is i)lacing within easy reach, a large amount of (hitherto practically inaccessible) material for the careful and detailed study of that system of banking to which the pros- perity of Scotland is greatly due, and which receives world-wide notice in general banking VIU PREFACE. discussions. It is only by such study that the benefits of experience can be fully obtained ; and that reasonable hope of a perpetuation of past success can be secured. Each man's experience comes, for the most part, too late for him to derive the full advantage of it himself. But he can counterbalance this by availing himself of the ex- perience of past generations. There is nothing new in the principles of banking, nor in their application. The changes are all in details and in the conditions of the business world. Owing to extended transactions, sul)divisions have become more complicated ; while, with the growth of population and wealth, the general business world has assumed more active and competitive aspects. But the experience of the banker of 1865, rightly read, is as valuable to-day as it was to the men of his own time. I do not seek more, for this small work, than that measure of appreciation in use which has attended my two former efforts for the benefit of Scottish banking. It is now twenty-three years since I initiated the movement which, by the influence and exertions of a few large-minded bankers, was successfully accomplished by the inauguration of the Institute of Bankers in Scot- land, which I was privileged to take an active part in organising. But I did not then contemplate that the movement would have such widespread acceptance as to extend, as we now find it, not only throughout Scotland, but to London, the provinces of England, the Australian Colonies, and the Dominion of Canada. My History of Banking PEEFACB. IX in Scotland was the outcome of a conviction that the students of the Institute, while supplied with economic, law and other text-books, had no means of systematic study of the history of their pro- fession ; and I have had the gratification of know- ing that it has been in constant use. I hope that my present labours may also be found to fill a vacant niche in banking libraries. Advantage has been taken of the present re- publication, to discuss a few minor points which, while not usually referred to in the public con- sideration of banking affairs, are yet of vital importance to a just estimate of conditions in which man's relationship to man is a primary factor. A. W. K. CONTENTS. CHAPTER PAGE Preface vii I. Characteristics of the Period . . . . i II. The General Position 14 III. Individual Experience 32 IV. Profit and Loss 42 V. Provision for Losses 82 VI. Bank Note Issues 86 VII. The Ultimate Gold Reserve 92 VIII. Evolution 103 IX. Arrangements and Functions Ill X. Bank Agents 128 XL Bank Officers 135 XII. Staff Aspects and the Institute - - . - 141 XIII. Company Auditing 153 XIV. The Death of Companies 158 Appendices 165 Index 171 SCOTTISH BANKING DURING THE PERIOD OF PUBLISHED ACCOUNTS. CHAPTER I. CHARACTERISTICS OP THE PERIOD. Banking in Scotland is so intimately associated with the upbuilding of the country's prosperity, that it may be re- garded as a national institution, deserving and requiring periodical inquiry as to its methods and procedure, in the interests both of the proprietors of the banks and of the public. In order to accomplish this satisfactorily, it is necessary not only to examine from year to year the posi- tion of the banks, but likewise to review, at suitable periods, the course of the banking business, and to inquire how each establishment has fared in relation to the general experience. The consolidated character of the Scottish banking system, and the uniformity of practice of the several banks, make such inquiries both more necessary and more readily accomplished. The completion of a period of thirty years since the banks generally adopted the practice of publishing their accounts, presents a suit- able opportunity for making such an examination at the present time. It was in the year 18G5, when the acuteness of the crisis accompanying the failure of the Western Bank of 2 SCOTTISH BANKING DURING THE Scotland had passed, but while the impressions made by it were still vivid, that the banks in Scotland first gener- ally adopted the practice of publishing annual reports, with abstract balance-sheets and profit statements. Some of them had, indeed, previously given more or less infor- mation to the public ; the younger banks being generally less reticent than their older rivals, who jealously pre- served the secrets of the prison-house. The banks in Glasgow published their yearly statements in the news- papers for several years before those in Edinburgh did so. The first of the latter to follow the example was the British Linen Company. Of course, the dividend was always an index to the profits. But in regard to the general state of the banking business, and the relative positions of the several banks, there was almost absolute ignorance, or at best only shrewd guessing. The advent of the reports was therefore received with a large amount of interest, and no few surprises, by bankers and the public. At that time the banking system of Scotland consisted of twelve independent banks, all exercising the right of issue, with 682 branch offices. These were, in the order of their formation : the Bank of Scotland, the Koyal Bank of Scotland, and the British Linen Company (which may be conveniently considered as the old banks), the Commercial Bank of Scotland and the National Bank of Scotland (the new chartered banks), the Aberdeen Town and County Banking Company, the Union Bank of Scot- land, the Central Bank of Scotland, the North of Scotland Banking Company, the Clydesdale Banking Company, the Caledonian Banking Company and the City of Glasgow Bank. The Central Bank was absorbed by PEEIOD OF PUBLISHED ACCOUNTS. 3 the Bank of Scotland in 1868, the City of Glasgow Bank failed in 1878, and the other ten banks are still carrying on business. All, however (except the three old banks), have altered their constitutions, and some their names (besides assuming the word "Limited"), in connection with their registration with limited liability under the Companies Acts, as a consequence of experience of the results of unlimited responsibility of shareholders. Banks' Experience as per their Reports. 1865. Highly profitable results (Union). Period of unusual anxiety in banking affairs (Clydesdale). 1866. Good rates and increasing business (T. & C). Continued depres- sion of consols (B. L. Co. and N. of S.). 1867. Exceptional profits (B. L. Co.). Profits exceptionally large (Com- mercial). Unusually low rates for money (T. & C.). Reduced value of money (Clydesdale). Low rates (N. of S.). 1868. Rates of interest have continued low (N. of S.). Depression (City of G.). 1869. Depression in investments (T. & C). Improved value and demand (Clydesdale). 1870. Extensive bill forgery. Low rates and dull trade (B. of S.). 1871. Appreciation of investments (T. & C), (N. of S.). Extra and inci- dental profits (National). Recoveries (Clydesdale). 1872. High value of money (Clydesdale), (Caledonian). 1873. Special bad debts and defalcations (B. L. Co.). 1874. Bad debts exceptionally large (Union). Value of money lower and more bad debts (Clydesdale). 1875. Collie frauds (Union). Special bad debts (Clydesdale). Industrial stagnation (B. of S.). 1876. Continued depression in trade (Royal). Trade depressed (B. L. Co.). Dull trade, cheap money (Clydesdale). Profits narrow, busi- ness contracted (N. of S.). 1877. Low value of money, losses unusually small (National). Low rates (Union). 1878. Low rates (Royal). Steady business, small losses (National). Over average bad debts (Clydesdale). Excellent harvest (N. of S.). Failure of City of Crlasgow Bank. 1879. Low value of money, small demand (National). Bad debts (N. of S.). Stoppage and losses (Caledonian). 1880. Rates unusually low (B. of S.). Improvement in business (Com- mercial). Moderate profits and losses (National). Improved business (Clydesdale). Low rates (Union). 1881. Profits better (B. of S.). Improvement in business (Commercial). Improvement (Clydesdale). Unfavourable experience (T. & C). 1882. Better market (Royal). Profit on investments (\i. L. Co.). Good demand for money (National). Good harvest, excellent fishing (N. of S.). 1883. Rates less remunerative but losses moderate (Commercial). Gross profits better but losses more (T. & C). 4 SCOTTISH BANKING DURING THE 1884. Depression (B. of S.). Stagnation (Royal). Continued depression (T. & C). Increased trade demand for money (N. of S.). 1885. Depression (B. of S.). Depression prevailing feature (Commercial). Low margin of profits (Union). Depression (Clydesdale). De- pression (T. & C). Business moderately remunerative (N. of S.). 1886. Depi-ession (B. of S.). Depression and low rates (Commercial). Diminishing demand (Union). Heavy losses (Clydesdale). Bad debts (N. of S.). 1887. Signs of improvement (B. of S.). Average value of money higher (Commercial). Fishcuring losses (N. of S.). 1888. Contraction of lending (B. of S.). Rate of profit higher but ad- vances lower (Commercial). Fishing trade losses (T. & C). 1889. Improvement (B. of S.). Business satisfactory (T. & C). Rates low |N. of S.). 1890. Good demand for loans (B. of S.). Baring crisis. Sharp fall in prices of investments (N. of S.). 1891. Business well maintained (B. of S.). Business exceptionally favourable (Commercial). 1892. General duluess of business (B. of S.). Market unfavourable (National). 1893. Total absence of remark, but profits generally higher. 1894. Low i-ates and bad debts (B. of S.). Dundee crisis (Royal and Clyde.). Restricted demand and low rates (National). 1895. Profits moderate (B. of S.). Depression of trade and low rates (Union). 1896. Continuance of ease in money market (B. of S., April). Last quar- ter higher rates. 1897. Improvement of trade (B. of S., April). A perusal of these reports is interesting, if only for the insight they give as to the causes that were supposed to be influencing the course of banking in Scotland. But in the main the compilers have erred on the safe side in saying too little rather than too much, and they have been most judicious in the avoidance of prophecy. The period embraced in our survey is particularly interesting, not only from the fact that we are enabled to study it with a much greater knowledge of its conditions than was previously possible, but also as being peculiarly typical, and exhibiting Scottish banking in its full maturity, and under conditions of as great prosperity and as great adversity as it had ever experienced. We have not, it is true, a complete record of bankers' views as to the series of years we are treating of, but from a careful PEEIOD OF PUBLISHED ACCOUNTS. 5 collection of such remarks as to conditions of trade, money rates, bad debts, and relative points as are from year to year made in one or other of the reports, we gather a general opinion which is somewhat surprising. It is proverbial that farmers never have good weather, but few people will be prepared to find that the last genera- tion of bankers have had very few favourable years. Of the thirty-three years — 1665-97 inclusive — it would appear that only thirteen can be chronicled as good, even including those which were only deemed as " better ". The other twenty years, and they are not confined to the two last decades, are accompanied by such remarks as " interest rates unusually low," "bad debts exceptionally large," "mercantile failures numerous," "restricted de- mand for loans," "depression of trade," "industrial stag- nation " (see Table of Experience). And yet the lean years did not swallow up the fat, but rather the fat the lean. Indeed, despite the woeful tale, the banks have fared well compared with other departments of business. Some of the establishments, perhaps, do not exhibit so prosperous an aspect as others, but this must be attributed to the incidents of individual experience. But if the reports paint a blacker picture of the course of business in the country than is quite accurate, they are by no means singular in this. It is the fashion to talk as if diminished profits on the part of producers, distributers, etc., were synonymous with national adversity, notwith- standing the facts that consumers have been reaping the benefit of the low prices, and the vast majority of the population of the country is in a healthier, wealthier, and happier condition than had ever previously been dreamt of. In point of fact such huiientations are mainly one- 6 SCOTTISH BANKING DURING THE sided, if not exaggerated. Capital has been steadily increasing at a greater ratio than the population, even if some wealthy men are somewhat less rich. The volume Population, Trade, and Bank Profits. Population (Scotland). Foreign Trade (U.K.). Bank Profits. Year. Number. Increase. ,. , Yearly Average \alue. and Rate of Increase. Ten Banks. 1864 3,151,611 £487,571,786 1865 3,181,383 489,903,861 : £1,083,667 1866 534,195,956 1,135,202 1867 501,306,989 1,136,338 1868 523,100,229 1,037,180 1869 532,535,292 | 1,051,342 1870 547,430,820 ' 1,055.511 1871 3,360,018 + 6-61 % 614,235,869 \ 528,785,100 1,086,323 1872 669,282,548 55 % 1.142,609 1873 682,282,137 1,246,312 1874 667,733,165 1,289,813 1875 655,551,900 1,254.519 1876 631,931,305 1,252,510 1877 646,765,702 1,269,605 1878 614,254,600 1,222,252 1879 611,775,239 1,095,060 1880 697,644.031 1,160.900 1881 3,735,573 + 11-18 % 694,105,264 [ 657,325.891 1,2.38,423 1882 719,680,322 24% 1,2.37,522 1883 732,328,649 1,242,065 1884 685,986,152 1,195,837 1885 642,371,649 1,152,102 1886 618,5.30,489 1,175,165 1887 642,990,725 1,142,088 1888 685,520,979 ; 1,140,937 1889 743,230,274 1,172,702 1890 748,944,115 1,212,689 1891 4,0.33,103 + 7-96 % 744,554,982 696,413,833 1,239.557 1892 715,434,048 i 6 % 1,219,440 1893 681,826,448 1,256,182 1894 682,130,677 1,151,582 1895 4,152,115 + 2-95 % 702,522,065 704,020,271 | 1,184,988 1896 4,182,868 + 3-71 % 738,188,118 2% 1,300,240 + 32-72 % + 54-74 % £37,780,662 19-99 % of trade has greatly increased ; and the value, though from 1875 to 1879 there was a falhng off, has really been wonderfully good, showing an increase much greater than that of the population. Confirmation of this is PERIOD OF PUBLISHED ACCOUNTS. 7 found in the shipping returns, from which it appears that the registered tonnage of Scotland increased, between 1865 and 1893, by 180 per cent., while that of the United Kingdom increased by 5*2 per cent. Indeed, the Eoyal Commission on the Depression of Trade and Commerce seem to have had some doubt as to the reality of the depression, except in the agricultural interests. An examination of the declared profits of the banks shows that, all through the period with which we are dealing, they were wonderfully steady, with an overhead upward tendency. Of course, a very large increase in resources was steadily proceeding, in view of which such a result might be viewed as dis- appointing, if not unfavourable. Had the same ratio of profit continued, the profits would, of course, show a large increase in volume, probably to the extent of 50 per cent. But the decreased ratio of earnings is not due to depression in trade, but to the results of the large accumulations of capital, increased facilities for pro- duction, and accelerated means of transit, which have been developed to a phenomenal extent. Of course we do not mean to say that the so-called depression is a phantasm. There has been a very real experience which has received that designation. But the designation is not quite applicable to the experience. Had it not been for the unquestionable depression in agricultural industry, the low value of money, the de- creased profits as distinguished from the volume of trade, and the natural reaction from a period of " leaps and bounds," people would l)e congratulating themselves on the material prosperity of the nation. And even these unfavourable features, with a partial exception as to the first, mainly affected a comparatively small proportion of 8 SCOTTISH BANKING DURING THE the population. Let any one look around, and ask himself the question, " "What proportion of the population, under the rank of the middle upper classes, is in a worse posi- tion now as regards obtaining the necessaries and com- forts of life than was the case thirty years ago ? " and he will be bound to admit that the national prosperity has advanced enormously. But the classes have suffered while the masses have benefited. Among the sufferers the banks will naturally be classed. But their adversity has been more negative than positive. The total declared profits are as large now as they were thirty years ago, even including the City of Glasgow Bank's return, which, as afterwards appeared, was quite unreliable. There has even been a realisation on the part of some of the banks of the expectation that the profits might keep pace in some measure with the increase of business, and, if all had been as steadily pro- gressive as these, Scottish banking would have shown a very satisfactory, if not actually brilliant experience. It is not that some of the banks have profited at the expense of others. All have, apparently, had a material, although not equal, share in the expansion of business. But it does not appear that the ten talents have been more con- spicuously successful than the five, or than the one talent. But while we are disposed to take cum grano salis the complaints of the times being out of joint, it is undeniable that very adverse features have characterised the last two decades of banking experience. The banking advances have not expanded in proportion to the increase in deposits, and consequently a larger proportion of the banks' resources has been diverted into reserve securities, which of course are less remunerative. Moreover, it has PERIOD OF PUBLISHED ACCOUNTS. 9 been increasingly difficult to get suitable investments for surplus funds, the pressure for such being so great that the return on gilt-edged securities has been brought down to an unprecedentedly low point. But the chief adverse element has been the persistent downward course of interest rates. Thus while in 1864 and 1865 the cash account rates averaged 6*37 per cent., and the three months' discount rates for London bills averaged 6"09 per cent., in 1894 and 1895 the rates were 4'52 per cent, and 2*76 per cent, respectively. (Appendix A.) But this by no means exhausts the position. An increasing proportion of the advances is now made at special low rates ; and the rates obtainable during recent years for floating balances in London have been almost nominal. The extent to which a bank's profits may be thus cur- tailed will be better realised when it is remembered that, while none of the Edinburgh and Glasgow banks has less than £10,000,000 of public liabilities, by a fall of } per cent, on that sum, a reduction of £25,000 in the earnings would be sustained. But, on the other hand, the banks have not sat still and paid away the old deposit rates while their lending rates were approaching zero. In 1864 the average deposit rates were as follows : Almost 3 per cent, on current ac- count balances calculated daily, more than 4 per cent, on the minimum monthly balances, and little less than 41 per cent, on deposit receipts. These rates were above the average rates of several preceding years ; but, even allow- ing for this, they present a great contrast to present ex- perience. Since then deposit rates have almost steadily fallen. In the ten years ending with 1875, the deposit receipt rate averaged only 2'67 per cent. ; from 1S76-85 10 SCOTTISH BANKING DURING THE 2'54 per cent. ; and from 1885-95, only 193 per cent. (Appendix A.) But it is not only by lowering rates that the banks have protected themselves, but also by the more radical method of discontinuing some of their interest arrangements entirely. On 1st July, 1885, the first step in this direction was taken by the abolition of the daily balance rate, all interest allowed on current accounts being thereafter calculated on the minimum monthly bal- ances, the rate, at the same time, being reduced from IJ per cent, to 1 per cent. As it was generally supposed that under the latter system only about two-thirds of the actual balances bore interest, this would represent an actual interest payment of 13s. 4d. per cent. only. The old minimum of 2 per cent, on deposit receipts was also given up, and the rate reduced to li per cent. These ar- rangements held good for seven years and ninety-one days, during which time the current account rate remained at 1 per cent. But the continued pressure of low lending and investment rates at length necessitated a reconsideration of the position. A suitable modification of the situation might, perhaps, have been found by restricting the allow- ance of interest on accounts to those whose balances did not fall, during each month, below a fixed sum, such as £500 or £1000. But such an arrangement would pro- bably have been only temporary, and a inore drastic measure was adopted by the total abolition of the allow- ance of interest on current accounts. At the same time the deposit receipt rate was reduced to 1 per cent. ; and, as an offset, the overdraft rate was reduced -h per cent. These changes took place on 1st October, 1892. The extent of the saving involved may be gauged from the statement of the chairman of one of the Edinburgh banks, PEEIOD OF PUBLISHED ACCOUNTS. 11 that the changes made a difference to them of £30,000 per annum. It should be noticed, on the other hand, that various concessions have also been made from time to time in commission charges ; but these are compara- tively trifling. The outstanding features of the period were the two crises of 1866 and 1878. The former — usually associ- ated with the failure of Overend, Gurney e^- Co. for over £18,000,000 — was more a mercantile than a banking crisis. Moreover, its effects were chiefly centred in Eng- land, Scotland being comparatively untouched. The Scottish banks experienced its eftects only in the higher rates ruling for money. It was very difl'erent with the crisis of 1878. In that case the tornado concentrated its full force in Scotland, and proved to be one of the worst that had afflicted the country. The immediate cause, and outstanding illustration of the effects, of this exceptional crisis, are associated with the City of Glasgow Bank. The crisis would probably have occurred though that bank had never existed, but its manifestations would doubtless have been of a milder description. The un- usual intensity of the calamity was fully realised by the banks. The striking illustration of the dangers of un- limited liability urged them to the protection of stock- holders, and their responsibihties in the matter of maintaining their credit with the public received earnest attention. There appeared to be a consensus of resolution towards strengthening their positions. But good resolutions are proverbially evanescent ; and it will be interesting and instructive to inquire how far the impressions of 1878 have had a lasting influence in the conduct of Scottish banking. There was a semi-crisis in 1875, by which some of 12 SCOTTISH BANKING DURING THE the banks in Scotland were severely affected. It was mainly associated with the Indian and iron trades, and was focused in the failure of the firm of Alexander Collie & Co. ; but was intensified by the fraudulent discounting practices of the senior partner of that firm, by which very heavy losses were entailed on bankers, the London and "Westminster Bank being hit to the extent of £600,000, and the Union Bank of Scotland transferring £120,000 to provide for their share. In November, 1890, a periodic crisis occurred, which centred in the " personally con- ducted " liquidation of the foreign-loan banking firm of Baring Brothers & Co., whose acceptances were so largely held by the Bank of England and most of the other bank- ing establishments of Britain, that, on the invitation of the former, a joint guarantee fund of many millions sterling was subscribed. Under this protection, the liabilities of the firm were assured, and its assets administered by the Bank of England. The liquidation extended from November, 1890, till early in 1895, when it terminated satisfactorily for all parties. No loss was sustained by the guarantee- ing banks. The amount subscribed by the seven banks in Edinburgh and Glasgow was £300,000 each, or £2,100,000 in all. This incident was the subject of much criticism. If justifiable at all, the special treatment of Messrs. Baring was so only on the basis of special cir- cumstances affecting other interests than theirs. It was a dangerous precedent, the justification for which would he applicable to numerous other cases, with the pernicious effect of encouraging dangerous business. But so far as the Scottish Joanks were concerned, they could not with dignity have held aloof when the leading English banks were supporting the Bank of England. PERIOD OF PUBLISHED ACCOUNTS. 13 Among the notable events of the time, allusion must be made to the raid into England which was begun by the National Bank opening an office in London in 1864. Little notice was taken of that action, and even when the Bank of Scotland followed suit in 1868, slight opposi- tion was shown by the vested interests of the metropolis. But when a third Scottish bank appeared in London in 1874, and more particularly when further intrusion was made by the Clydesdale Bank planting branches in Cumberland, a perfect tempest of indignation was raised against the Scottish invaders. Mr. Goschen appeared as an active champion of the English bankers, and introduced a bill in Parliament to enact that "the power of any banker to make or issue bank notes, whether in England or in Scotland, shall ... be subject to the condition that such banker shall not . . . have any house of busi- ness or establishment as a banker in the other of the said parts of Great Britain ". The bill was, however, withdrawn, and a proposal by Sir Stafford Northcote for a committee on the restrictions and privileges conferred by law on bankers in England, Scotland, and Ireland respectively, agreed to instead. A valuable blue book was the only tangible result. The banks, quietly but steadily, maintained their ground, with the result that opposition died out, the invasion was tacitly permitted, and the other Edinburgh and Glasgow banks were al- lowed peacefully, but not without bitterness of feeling, to follow into the metropolis in the wake of their breth- ren who had borne the burden and heat of the conflict. 14 SCOTTISH BANKING DURING THE CHAPTEK II. THE GENERAL POSITION. In pursuing our inquiry into the progress of Scottish banking since 1865, the first point that falls to be con- sidered is the growth of the business. And in order not to be restricted to a simple comparison between the positions as at present and in 1865, we propose to found also on the statistics of 1872 and 1888. The periods thus formed are irregular and arbitrary, but they are con- venient, as the data for these years have already been tabulated in Somers's Scotch Banks and Kerr's History of Banking in Scotland. At the commencement of the period we are treating of, twelve banks were in business. These included the ten banks now existing, the Central Bank of Scotland (a small concern) and the City of Glasgow Bank. The former was absorbed by the Bank of Scotland in 1868, and the latter failed in 1878. That the wealth of the nation is steadily increasing, not only in volume but in proportion to population, is proved by various taxation, financial, and commercial statistics. The figures relating to the growth of banking in Scotland are of the same tenor. The total liabilities of the twelve banks existing in 1865 amounted to £77,221,874. Last year the ten banks held funds to the extent of £124,259,067, showing an expansion of £47,037,193. The percentage of increase is 61, whereas the population, on a PERIOD OF PUBLISHED ACCOUNTS. 15 fair estimate of increase since last census, has increased by only 32'72 per cent. Or, to put it differently, while Total Liabilities. Estab- lished. 1695 1727 1746 1810 1825 1830 1838 1825 1836 1838 1834 1839 Bank - - - - Royal - - - - British - - - Commercial National - - Union - - - Clydesdale - - Town & County North - - - Caledonian - - Central City - £8,709,725 11,452,654 9,057,380 9,471,155 9,562,727 9,834,605 6,402,704 1,574,510 2,314,527 955,756 £69,335,743 1,177,444 6,708,687 £77,221,874 £18,920,370 17,588,552 16,205,046 16,811,377 18,386,058 14,235,357 13,194,194 3,159,346 4,340,908 1,417,859 £124,259,067 £124,259,067 Increase. £10,210,645 6,135,898 7,147,666 7,340,222 8,823,331 4,400,752 6,791,490 1,584,836 2,026,.381 462,103 £54,928,324 £47,037,193 Per Cent. 117 53 78 77 92 45 106 100 87 48 80 61 Deposits. Estab- lished. 1865. 1896. Increase. Per Cent. 1695 Bank - - - - £6,488,227 £14,415,554 £7,927,327 122 1727 Royal- - - - 8,127,792 13,088,826 4,961,0.34 61 1746 British - - - 6,886,894 12,036,199 5,149,305 74 1810 Commercial 7,088,8.35 13,542,6.38 6,453,803 91 1825 National- - - 7,205,266 14,.589,425 7,384,159 102 1830 Union - - - 7,771,887 11,443,482 3,671,595 47 1838 Clydesdale - - 4,578,710 9,743,930 5,165,220 112 1825 Town & County 1,221,655 2,471,081 1,249,426 102 1836 North - - - 1,716,128 3,362,359 1,646,231 96 1838 Caledonian - - 694,548 1,042,891 348,343 50 £51,779,942 £95,736,385 .£43,956,443 85 1834 Central - - - 954,184 1839 City - - - - 4,446,365 £57,180,441 £95,786,385 £38,555,944 67 the average yearly increase of population during the thirty years has been 1"02 per cent., the hanks' resources 16 SCOTTISH BANKING DURING THE have expanded, on an average, by 1'97 per cent. — not very far from twice as rapid a rate. But the rate of increase of banking funds proceeded at a slower pace from 1883-96 than formerly, as also appears in regard to population. The great volume of increase has been due to the deposits. These have been expanded from £.57,180,441 to £95,736,885, a difference of £38,555,944, or 67 per cent. As we have seen, the inducement to depositors has been increasingly unfavourable. This finds its counterpart in the statistics now before us ; for, whereas from 1865-72 the average yearly increase was £1,744,631, from 1872-83 it was only £1,240,571, and in 1883-96 it had fallen to £976,711. At first sight this result might seem to militate against the theory of the steady increase of national wealth. But this is not so. Owing to the discouragement necessarily given to depositors, the character of the deposit money has largely changed. The investment deposit which used to lie year after year undisturbed, except for interest calculation, is a thing of the past. Bank deposits are now funds in transitu, or, at best, awaiting a more favourable opportunity of investment. On the other hand, inducements to investors have multi- plied greatly, and although good investment stocks command very high prices, the return on them is now, relatively to bank deposit rates, more favourable even than formerly. Still, in relation to population, an upward movement continues, for while in 1865 the deposits equalled £17 19s. 5d. per head, the figures were £20 8s. 7d. in 1872, £21 17s. 7d. in 1883, and £22 17s. 9d. in 1896. This is fully in accordance with the general theory as to increase of national wealth. The course of the note circulation is interesting. The PERIOD OF PUBLISHED ACCOUNTS. 17 banks' reports show an expansion of £2,306,568, or 46 per cent., which compares with 18 per cent, in 1883. Owing, however, to the mode in which the circulation is con- ducted under the Acts of 1844-5, it is necessary to take the Government returns to ensure accuracy of comparison. The average circulation for the year 1895-6 was £7,157,683, as compared with £4,861,256 (twelve banks) in 1864-5. NOTE CIRCULATION. Per Reports. Government Averages. 1865. 1896. 1864-5. 1895-6. Increase. Per Cent. Bank - - £553,160 £1,012,494 £493.078 £1,079,044 £585,966 118 Royal - - *528,725 946,631 534,717 927,342 392,625 73 British - - 442,343 850,541 489,625 853,682 364,057 74 Commercial 697,425 972,625 555,227 929,454 374,227 67 National - 679,075 861,180 472.094 827,044 354,950 75 Union - - 579,299 949,244 582,421 950,772 368,351 63 Clydesdale 408,170 858,381 373,026 715,651 342,625 92 T. & County 134,891 278,474 143,350 303,700 160,-350 112 North - - 222,629 441,111 217,914 438,640 220,726 101 Caledonian 83,256 138,567 74,112 132,354 58,242 78 £4,328,973 £7,309,248 £3,935,564 £7,157,683 £3,222,119 82 Central - - 53,310 61,443 City - - - 620,397 364,249 £5,002,680 £7,309,248 £4,361,256 £7,157,683 £2,796,427 64 Dates of Balance.— imQ— 21 Wv February ; 10th October ; 15th April ; 31st October ; 1st November ; 2nd April ; 31st December ; 31st January ; 30th September ; 30th June. This shows an increase of £2,796,427, or 64 per cent. But when we compare the three consecutive decades of the thirty years, a varied experience is the result. For the first ten years the expansion proceeded at a much more rapid rate than subsequently. While in that decade the average yearly increase was £167,123, during the next * Average for year. 2 18 SCOTTISH BANKING DURING THE ten years there was an actual decrease averaging £16,749 per annum. But the tide turned again during the next ten years, and the average yearly increase rose to £102,838. A further expansion occurred in 1895-6 amounting to £264,303, being less, however, than the increase during the preceding year. The explanation of these differences is probably that while the note circulation was a more active medium in the settlement of transactions than it subsequently became, the advancing prosperity of business caused an augmentation of the issues. Later, however, the banking troubles of 1878, involving the withdrawal of the City Bank issue, and the temporary suspension of that of the Caledonian, together with the increasing use of cheques, and other economies of cash payments, produced a large diminution of the circulation. But it is worthy of notice that the decrease had commenced before the crisis, the return for 1877-8 showing a fall of £191,235. The revival of activity in the circulation, during the last decade, is probably due to the continued increase of wealth and population, and has latterly been accentuated by the cessation of allowance of interest on current accounts. When customers began to realise that there was no advantage in paying into bank sums which they would shortly require, they adopted the practice of holding larger cash balances than formerly. While this active state of the note circulation is an indication of public prosperity, it is not an advantage to the banks. For not only do they derive no profit from the excess circulation beyond their authorised limits, but the additional expense entailed reduces the profit derivable from the authorised issues. It should also be noted that, in their own interests, the banks have, by improved exchange arrangements, en- PERIOD OF PUBLISHED ACCOUNTS. 19 deavoured to keep the circulation at as low a point as possible. The acceptances and drafts have increased by Acceptances and Drafts. Increase. Per Cent. Bank - . - - Royal - . - - British - . - . Commercial - - National - - - Union - . - - Clydesdale - - Town and County North of Scotland Caledonian - - Central City- - £.361,492 *378,576 276,501 350,432 310,327 231,023 163,592 £1,383,759 709,168 423,459 .368,981 905,431 169,008 997,734 t20,401 +5618 £972,267 330,592 146,958 18,549 595,104 J62,015 834,142 20,401 5618 £2,071,943 541,186 £4,933,559 £2,861,616 £2,613,129 £4,933,559 £2,320,430 269 87 53 5 191 +26 510 204 56 133 99 Capital Subscribed. 1896. Increase. Per Cent. Bank - . . - Royal - - - - British - - - - Commercial - - National - - - Union - - . - Clydesdale - - Town and County North of Scotland Caledonian - - Central City- - £1,500,000 2,000,000 1,000,000 3,000,000 5,000,000 1,000,000 900,000 520,000 1,600,000 500,000 £1,875,000 2,000,000 1,250,000 5,000,000 5.000,000 5,000,000 5,000,000 1,260,000 2,000,000 750,000 £375,000 250,000 2,000,000 4,000,000 4,100,000 740,000 400,000 250,000 £17,020,000 250,000 870,000 £29,135,000 £12,115,000 £18,140,000 i £29,1.35,000 £10,995,000 25 25 66 400 455 142 25 50 71 61 £2,320,430, or 99 per cent, over the thirty-one years. But this contrasts unfavourably with thirteen years ago, when * Including sundries. + Drafts only. J Decrease. 20 SCOTTISH BANKING DURING THE the total amount held was within £90,000 of what it is now. Indeed, were it not that 1896 showed an exceptional increase, the comparison would have been largely the other way. No doubt this is a reflection from the state of trade ; but it results also from the growth in wealth permitting of cash payments to a greater degree than formerly. Economies in exchange arrangements must also have interfered with the use of letters of credit. The principal customers of the banks have now accounts with their bank's offices in London, Edinburgh, Glasgow, or other centre of their business transactions, by cheques on which the occasion for purchasing drafts is avoided. The falling off is, in the main, in the acceptances. The reports do not supply the data for making a comparison with 1865 ; but, taking the figures for 1878, the decrease in drafts is about £160,000, while the acceptances are lower by about £2,300,000. Moreover, this result appears to be caused by contraction in acceptances to banking correspondents, and not to mercantile firms. But there is considerable uncertainty in this item of the liabilities as supplied by the reports, the amounts being liable to great fluctuations owing to exchange settlements. Together these several classes of the public liabilities show a growth of £43,182,939, or 66-64 per cent. While the banks' indebtedness to the public has expanded in so marked a measure, the aggregate addition to the pro- prietors' funds has been by no means inconsiderable. The paid-up capital, it is true, stands at a lower point than thirty years ago by £129,000. This is due to the disappearance of the capitals of the Central Bank and the City of Glasgow Bank, amounting together, in 1865, to £970,000, which has not been fully counterbalanced PERIOD OP PUBLISHED ACCOUNTS. " 21 by increases of capital by the surviving banks. But if allowance be made for the fact that a considerable amount of the nominal capital of some of the banks was not in the hands of the public in 1865, but has since been placed, it will be seen that the apparent falling off is not real. The difference to be thus allowed for is probably about £350,000. But, if a decrease in the paid-up capital requires to be explained away, it is very different with the uncalled capital. Owing to the large additions made to subscribed capital in connection with the adoption of limited hability the increase in uncalled capital is very large, amounting to £10,995,000, or 61 per cent. Al- though this movement has not added strength to the position of the banks from a public point of view — the old system of unlimited liability having provided almost absolute security — it requires to be remembered in all questions relating to the security provided by the pro- prietors for their public liabilities. But whatever dis- appointment may be felt regarding the capital accounts, the reserved funds tell another tale. These show an aggregate improvement to the extent of £3,983,251, or no less than 133 per cent. That is to say, they are now more than two and a quarter times as large as they were thirty years ago. This points to a considerable effort on the part of the banks to strengthen their position. But when we contrast the growth in the proprietors' funds with the growth in the public liabilities it is seen that the relative position is not nearly so strong as it used to be. In 1865 the aggregate proprietors' funds bore the proportion of 19 per cent, to the public liabilities. The proportion is now only 15 per cent. Only in one instance among the 22 SCOTTISH BANKING DURING THE banks individually is an improvement in this matter shown. And in case it should be thought that the with- drawal of the Central and City of Glasgow Banks might explain or mitigate the position, it may be well to state that it so happens that the conjoined funds of these banks were almost exactly up to the average ; so that the existing banks show the falling off we have indicated from 19 per cent, to 15 per cent. The first point to be noticed among the assets is the growth of the banking advances. These have increased from £54,849,854 to £67,942,250, or 24 per cent. Con- trasting as it does with an increase of 66 per cent, in the deposits, this improvement is, of course, much less than might have been expected. It is apparent from the yearly reports that the banks have been unceasingly looking for- ward to a more active demand for banking accommoda- tion. And, from time to time, as business or speculation moved the market, there seemed to be justification for hopes of improvement ; but disappointment invariably followed. Xo doubt a favourable experience will again be realised to some extent. But it may well be doubted if in the future profitable conditions comparable with those of former times will pay more than angels' visits — few and far between. People have more personal com- mand of monej' than formerly ; and when they wish to supplement their private resources there is a much better market. The borrow^ers are becoming masters of the situation. Besides, it is probable that prices of commo- dities are permanently lower, and that the relative capital requirements will not be again on a scale equal to that of some years ago. When comparison is made between the periods 1865-83 and 1883-95, a great difference in PERIOD OF PUBLISHED ACCOUNTS. 23 3 a, >OC0O5THaDC0t-00t-O5 t-O»0OC0t-t~t-t-iH '-HCOOt-OtM'-HCMOCO t- CO CM O Oi C-l O 00 (M__ 00 i-h" O CO of i-T i-T r-T rH tH Ol 10 05^0CDCM'*C2-*»0 O Cs Oi O O ot) 03 f-S '-H t-OjoOC0t-t~t-t~rH rtOSc~CDCM^(MOCO t- CO ^ O O CM CT>_ CO C-1^ 00_ T-T O" XC of tH O" rH~ lO' rH t-^ OOlSoOCDC-J-^OCqCM O tH 2 "O "^ '^ '^1 COt-t-COtMCOOli-lt-CO COt-^o o" t-^ '-T tjh" qo' of of i-T lO c^f Oi-H^iCOOCOlOOCllO CO Tii -* CO CO CM CO Soo 5 o o ^.o o 2 o'd" 2 t-co crt =rt P4 =rt o o o o o o o o o o o o oooooooooo oooooooooo cooooooo^o^o o" o' o' c' o" o o' of o" o' ooiooooo'OO'o 01_0 01_0_0_0_0 Ol •* rH rn" of rn" r-T ih" i-T i-T O O O Q O O O Q O O O O o o o q^ o o^ S' o" o q' o co' o' lo' O Q O O "O OD Ol OOOOO-HOIrH o o o o S 2 o o o a cs • ^3-5-2'^.^o| P° ci- (5 o ;^ lj o H i^i 6 Su5 a i-..ti s ti-;= =rt 24 SCOTTISH BANKING DURING THE experience is seen. During the former period there was an overhead expansion to the extent of 25 per cent., or an average of nearly £600,000 per annum. During the latter period there v^^as an actual contraction of nearly £4,000,000, or 6 per cent. The downward course has not heen quite continuous, having been considerably lower than the present point in 1888 and 1889 — the difference being fully £2,500,000. The year 1896, more- over, has shown a general improvement. As a natural consequence of the contraction in ad- vances, the banking reserves have assumed very large proportions. The total amount of the investments, cash balances, etc., is £52,823,996, showing an increase of £31,561,839, or 148 per cent. This expansion, while a healthy feature as viewed from the standpoint of the public, is disappointing in an economic aspect. The old theory was that reserves should be about one-third of the amount of the public liabilities. Under modern condi- tions a higher proportion would probably be at all times advisable. But the present point of 48 per cent, is mani- festly an unprofitable excess of strength. Indeed, the process has proceeded so far that the conduct of invest- ment threatens to become as outstanding a department of the banks' business as their legitimate vocation of banking. The movement has been practically continu- ous throughout the period we are reviewing, and latterly it has been advancing with giant strides. Up to 1872 the increase was at the yearly average of £924,000, from 1872-83 at £952,000, and during the succeeding twelve years at £1,339,000. Should the contraction in advances and expansion in reserves proceed for five or six years at the same rate as recently, the investment portion of the PERIOD OF PUBLISHED ACCOUNTS. 25 operations of the banks will become, as regards volume, the more important of the two. Indeed, it may be a Banking Advances. Increase. Per Cent. Bank . . . - Royal - - - - British - - - . Comraercial - - National - - - Union - - . - Clydesdale - - Town and County North of Scotland Caledonian - - Central City - . £5,488,607 8,206,985 5,926,964 6,179,293 6,737,302 7,507,748 5,163,041 1,182,032 1,687,523 854,038 £11,104,652 9.657,392 10,197,474 8,461,212 9,890,639 6,844,803 6,857,963 1,663,389 2,451,342 813,384 £5,616,045 1.450,407 4,270,510 2,281,919 3,153,337 *662,945 1,694,922 481,357 763,819 *40,654 £48,933,533 1,103,512 4,812,809 £67,942,250 £19,008,717 £54,849,854 £67,942,250 £18,092,396 102 17 72 37 46 *9 33 41 45 *5 40 24 Banking Reserves. To Public 1865. is9e. Increase. Percent. Liabilities. Per Cent. Bank - - - £3,095,732 £7,215,673 £4,119,941 133 43 Royal - - 3,1.33,637 7,425,107 4,291,470 136 50 British - - 2,996,439 6,619,082 2,622,643 87 42 Commercial 3,192,242 7,900,205 4,707,963 147 53 National 2,724,159 8,055,519 5,331,360 195 43 Union - - 2,154,375 7,034,340 4,879,965 226 56 Clydesdale - 1,140,315 5,889,794 4,749,479 416 61 T. & County 303,968 1,420,954 1,056,986 290 52 N. of Scot. - 624,387 1,726,789 1,102,402 170 45 Caledonian - 86, .384 536,533 460,149 520 46 £19,511,638 £62,823,996 £33,312,358 171 48 Central - - 57,270 City - - - 1,693,249 £21,262,167 £52,823,996 £31,561,839 148 33 practical question to consider whether the large banks may not require to devote more systematic attention to * Decrease. 26 SCOTTISH BANKING DURING THE this increasingly important part of their business. Not- withstanding the care with which banks' investments are proverbially made, regularly organised departments for the conduct and supervision of the investments might be elements both of increased safety and of profit. The last item among the assets that falls to be noticed is the heritable property accounts. These consist of the outlays on bank buildings, representing the value of the offices occupied by the banks for the conduct of their businesses, and accounts for heritable property yielding rent, consisting of houses, etc., which have come into the possession of the banks through foreclosure of mortgages, or been acquired for prudential reasons. Confining our attention to the bank buildings, the amount has, as might be expected, vevy largely increased during the thirty years. From £1,091,862 it has risen to £1,961,271, an increase of 80 per cent, (including the Central and City Banks, with 105 offices). This does not represent, however, nearly the total outlay, for it must be remembered that large sums are yearly laid aside to reduce the account. The total amount applied since 1865 to depreciation of real property is £911,162, of which almost all was on account of bank buildings. It will thus be seen that the actual expenditure has been about twice as much as the apparent increase. The amount written off may appear consider- able ; but when allowance is made for the fact that a large proportion of branch offices have cost much more than their local sale value, the 30j per cent, of deprecia- tion must be deemed very moderate. And not only has the total expenditure been large, but the cost of the buildings would seem to have been considerably enhanced. Thus, while in 1865 the average amount in proportion to PEEIOD OF PUBLISHED ACCOUNTS. 27 number of offices was £1573, in 1895 it was £1918, and in 1896, £1932. If the amount written off be included, as should perhaps be done, the latter sums will be £2751 and £2830. Of course this is a rough test, for we have not details of the number of offices owned by the banks, the businesses being sometimes conducted in rented premises. Besides, it is probable that a larger proportion of branch offices is now owned by the banks than formerly, thus tending to raise the average price. Still, it is hardly doubtful that the cost in relation to accommodation is higher now than it used to be. In treating of the ex- penditure on bank buildings, the cost of properties in London acquired in connection with the branches opened there is not included, except in the cases of two of the banks. The sum involved is £474,403, which is partly yielding revenue, but must be deemed as largely adding to the proper cost of bank buildings. It is more difficult to deal with that portion of the real estate accounts which relates to rent-yielding property exclusively. Until after the crisis of 1878, it was not usual for the banks to give particulars of this item of their assets. And even now no particulars are given enabling an opinion to be formed as to the correctness of the valuations. Doubtless the original values were correctly enough ascertained, however, and the properties would not suffer from inattention to repairs. The sum at present represented by this item of the assets is about £1,000,000. But it need not be further differentiated from the bank buildings. The total amount of the heritable property accounts was £2,514,966 in 1879. At present it stands at £3,492,821, an increase of 34 per cent. Including what has l)ccn written off for deprecia- 28 SCOTTISH BANKING DURING THE OOD-'-iOQCOCDTHOe'S 050000 CO CO *"• Ol 01 Ol OI -H O) CO OS cn O Crt coo cm ^■~ D =rt Q^ COOlt-OlOrtlOOOOCO r-i 01 Oi O] QOCOt-OlOOO-^rHT-ICO t- CO 01 CO ta CO o C5 o_ oi ■* CO m_ CO co_ lo co__cq co_^ a ^ lO" of CO ■* ^ of co" 00* ^' lo" of co" of rH o_ t-;_ o_ o er; 00 ^ lo o" lo" o" Oi CO of of T— t ■2 35 t-COO-^OllOOTtlOlOa T— ( s § iH rH rH +-1-1-I iH -n- Oi •cj =rt =« 4^ g oocOTjHiot-iHrHCJt-eo 01 O ■^TH»OC5t--l-C0i-IOl CO ^ O-^CO-^OiHCD-^OOt- ^ CJ >OrHt-COOCOO>00000 >o ss CO>Oi-(0i»OC5C000C co QOCOt-OqcOOOrHi-lt-fCO t- CO Ol CO CO_ CO_ OJ^ ■*_ CO__ 10 CO CO CO_ 00 io" of CO cT r-T of ctT 00" '^ lo CO 0"c0 of 0; X OlT-ICOOJOt-CJO) tH >-l i-H iH tH .-H CO Ol rH =rt =rt r-T ,,._,,. J^ , , , , ank - - oyal - ritisli - ommercia ational nion - lydesdale . & Count . of Scot, aledonian "a ^ .1- eq p? eq iz; P a EH ;z; Q 00 PEEIOD OF PUBLISHED ACCOUNTS. 29 tion, the total cost has been £4,403,983. It would thus appear that the property stands at about 80 per cent, of its cost price. As we have already indicated, sufficient data are not supplied to allow of a definite opinion being expressed as to the sufficiency of the provision for de- preciation. But considering the somewhat unsaleable character of many of the branch buildings (which would be white elephants to the local tradesmen), and the very heavy fall which has taken place in the value of house property since 1880, 20 per cent, seems a moderate appropriation from profits. The question of profits will be dealt with in a sub- sequent chapter, but there are a few other points which fall to be included in a review of the general position. In the development of banking the extension of branches has been a marked feature. In 1865, twelve banks had 694 offices ; in 1872, eleven banks had 807 offices ; in 1883, the presently existing ten banks had 912. The latest returns show the number to be now 1015. There were actually more branches (1021) open in 1894 ; but the reduction is entirely due to one bank, the Commercial. When it is remembered that even twenty years ago the extension of the branch systems was thought to have been overdone, this increase of more than ten offices per annum will be viewed as somewhat remarkable. Whether it has been as profitable is a question which will fall to be considered subsequently. Another noticeable feature is the great rise in the market values of the stocks of the banks which has taken place. From an average price of 196 per cent, for the twelve banks in 1865, the stock exchange quotations rose to 213 per cent, for the surviving banks in 1879, having, however, been as high as 286 per 30 SCOTTISH BANKING DURING THE cent, during the preceding year. They rose again to 259 per cent, in 1884, and 308i per cent, in 1897. The result Bake Offices. 1865. 1872. 1883. 1895. 1896. Bank - - - - 61 76 107 118 118 Royal - - - - 75 93 126 128 128 British - - - 53 61 104 119 119 Commercial - - 77 92 114 143 1.33 Kational - - - 73 84 95 109 109 Union - - - 105 113 125 134 136 Clydesdale - - 61 76 100 112 114 Town & County 32 34 52 63 63 North of Scot. - 35 40 65 68 68 Caledonian - - 17 19 24 27 27 589 688 912 1021 1015 Central - - - 10 — City - - - - 95 119 694 807 912 1021 1015 Pkices of Stocks and Shares Per Cent, in February. 1865. 1879. 1884. 1895. 1897. Increase or Decrease. Bank - - - - 223 267 310 345 348 + 125 Royal - - - 162 183 217 222 228 + 66 British - - - 238 235 302 392 437 + 199 Commercial 234 223 275 364 400 + 166 National - - 218 244 307 344 393 + 175 Union - - - 185 175 222 210 230 + 45 Clydesdale - - 193 176 225 198 210 + 17 To\vn & Comity 173 257 242 303 305 + 132 North of Scot. - 200 266 271 231 240 + 40 Caledonian - - 205 — 184 180 180 - 25 200 213 259 288 308J + 108J Central - - - 250 City - - - - 1.37 196 is practically the same if the view be confined to the PERIOD OF PUBLISHED ACCOUNTS. 31 existing banks. In their case the total vahie of capital stocks was about £17,000,000 in 1865 ; it is now nearly £28,750,000, although the increase of stock in the interim has only been £841,000. This result is not due in any great measure to increase of dividends ; for although a few of the banks have made great strides in this respect the average rate has only risen from 9;^ per cent, to 11* per cent., being actually less now than it was thirteen years ago. The average return on the average price is 3"64 per cent, now, as contrasted with 4*72 per cent, in 1865. From this survey of the course of banking in Scotland it would appear that while the growth of business has been remarkable as regards volume, the results have in several essential respects been disappointing. 32 SCOTTISH BANKING DURING THE CHAPTEE III. INDIVIDUAL EXPERIENCE. Marked as have been the movements shown by a survey of the aggregate experience of banking in Scotland dur- ing the last thirty-two years, the individual experience of the banks presents still more noticeable results. All the establishments have increased the volume of their businesses, but the degrees of progress have been various, the relative positions of the component members of the group have changed, and a great growth of business has frequently been accompanied by a comparatively unfa- vourable profit experience. Prestige has not sufficed to secure custom, nor has comparative weakness deterred public recognition. What economic laws have shaped the courses of banking experiences it would require much fuller information than statistics can supply to say. Questions psychological, and even physiological, moral and social, enter into the problem ; and even the chapter of accidents, or what in our ignorance we have no better term for, has been potent to mould the des- tinies of our banking establishments. The premier place as regards both increase and abso- lute amount of business falls to the premier bank.* The total liabilities of the Bank of Scotland have increased during the period under examination by £10,210,645, or 117 * See tables in chapter ii. PERIOD OF PUBLISHED ACCOUNTS. 33 per cent. ; and they now amount to nearly £19,000,000. Whereas at the opening of our period that bank only occupied the sixth place in respect of volume of busi- ness, it has now the first. It is, of course, the deposits which form the bulk of the liabilities, and in this de- partment the Bank of Scotland shows a growth of 122 per cent.* It would appear as if it had got the lion's "share in the portion of the City Bank's business. Next- to it comes the Clydesdale Bank with an increase of deposits to the extent of 112 per cent. ; but as this bank was comparatively small in 1865, the proportion of increase shows more largely than the actual amount, which is considerably exceeded by some of the other banks. Thus the National with 102 per cent, and the Commercial with 91 per cent, both show much larger increases in actual amount. The improvement in the case of the Commercial Bank since 1883 is conspicuous, and to a smaller extent the same remark applies to the British Linen Company. The Town and County and North of Scotland Banks show marked advances, the former having more than doubled, and the latter nearly doubled, the amount of their deposits. The other banks also show considerable increases, which are not, however, up to the general average. It is noticeable that the im- provement in deposits has, except in the cases of the British Linen, Commercial and National Banks, been less rapid during the last twelve years than formerly. During 1896 the National Bank increased its deposits by the exceptional amount of £767,097, and now heads the list as the largest deposit-holder. * The report iswued last April shows no material change iu the hank's position. 3 34 SCOTTISH BANKING DURING THE The remittance business shows marked diversity in the experience of the different banks. Thus while the Clydes- dale Bank, the Bank of Scotland, and the National Bank all show a great extension of business, the Commercial has only an increase of 5 per cent., while the Union shows an actual falling off of 26 per cent. While several of the banks — the Royal, British Linen, Commercial, and Clydesdale — show extension of business in this depart- ment since 1883, those banks which have been most conspicuous for their cultivation of acceptance business — viz., the Bank of Scotland and the National Bank — both show a contraction. But, perhaps, the basis for discussion of this subject is too uncertain to permit of satisfactory deductions. Fortunately, in regard to the note circulation, we are on firmer ground, and from the Government returns of the average circulation a fair idea can be formed of the extent of public favour vouchsafed to each establishment. Not many persons, it is true, discriminate among the issues, and the extent of issues appears to be more nearly related to the number of branches than to the extent of the business. Thus we find that the Union, the Com- mercial, and the Royal, with the largest number of offices, headed the list until comparatively recently, when the Bank of Scotland stepped in front of them, and has since retained the leading position as regards supplying the circulating medium. This fact militates against the theory, for the Bank of Scotland comes fifth in number of offices. But it must be regarded rather as an exceptional circumstance than as an adverse argument. It would seem to suggest that the Bank of Scotland has a stronger hold on the industrial districts than the other banks, a PERIOD OF PUBLISHED ACCOUNTS. 35 view which finds support in its relatively greater progress in banking advances. The general average of increase for the ten banks is 82 per cent., and is only exceeded by four banks, viz., the Bank of Scotland, 118 per cent. ; Town and County, 11'2 per cent. ; North of Scotland, 101 per cent. ; and Clydesdale, 92 per cent. ; the Caledonian following with 78 per cent. This comparative activity of the provincial banks is remarkable, but may be due to less rapid exchanges than in the case of the Edinburgh and Glasgow banks. Including in the comparison the issues of the Central and City Banks, the increase in the aggre- gate circulation is 64 per cent., which is exceeded by all the banks except the Union, which is but slightly under it. The place of honour in respect of additions to pro- prietors' funds has been secured by the British Linen Company, which shows an increase of £1,443,205. This result is mainly due to an issue of £250,000 of new stock, whereby a premium of £500,000 was realised ; and to a previous issue in 1882 of stock which stood in name of the bank, the profit on which allowed £200,000 to be added to rest. But business profits have also borne a large part in building up the reserve fund, no less than £442,569 of the total increase having come from this source during the period we are reviewing. This large appropriation is only exceeded by the National and Union Banks, with the Commercial as a good fourth. The pro- portion of increase by the British Linen Company is 99 per cent. The Town and County Bank iollows with an increase of 88 per cent. The Bank of Scotland, which made an issue of £250,000 of new stock in 1877, also shows the substantial improvement of £851,717, or 65 per cent. The only other bank exceeding the average of 44 36 SCOTTISH BANKING DURING THE per cent, is the National, with 48 per cent. ; but the Commercial is pretty close at 43 per cent. The Eoyal has added £426,3(36 to reserve, and by reason of its large capital stands well in the proportion of proprietors' funds to public liabilities. It is, however, exceeded in this respect by the British Linen Company. As we have previously indicated, the banks do not hold so strong a position from this point of view as they used to do. There is only one exception to the general falling off, viz.^ the British Linen Company, and only other two banks, the Royal and the Caledonian, have not fallen below the average of 1865 ; while these and the Town and County alone maintain the present average of 15 per cent. The past year shows some notable additions to the reserved funds, the British Linen having added £100,000 (mainly from premiums on realised securities), the National £30,000, the Commercial and Union £25,000 each, the North of Scotland £17,500, and the Town and County £4000. The experience as regards growth in banking advances is of a very diversified character. The Bank of Scotland has done very well with a growth of 102 per cent. — pretty nearly in equal ratio to the increase in total liabilities. The British Linen Company also has the fair increase of 72 per cent. The National, North of Scotland, and Town and County are also over average. But none of the others shows well ; and the Union and Caledonian have actually contracted their advances. With the ex- ception of the Bank of Scotland, British Linen Company, and Commercial Bank there has been a falling back within the last twelve years. The banking business is not keeping pace with the growth in resources, and there PERIOD OF PUBLISHED ACCOUNTS. 37 is an evident tendency towards becoming investment companies as much as banks. This is not a desirable movement, either from the banks' own, or from a piibhc point of view; but there seems to be no help for it, unless the demand for accommodation greatly revives, of which the prospect seems remote. The reports issued during 1896 show a general improvement in the advance business, which is particularly marked in the cases of the British Linen and National Banks, while to a smaller extent the Commercial and Union Banks have also done fairly well. But, to a large extent, the increased advances are of a stock exchange, rather than of a commercial character. Of course the banks might discourage deposits, and so lessen the plethora of investment money, but their profits are not brilliant enough to permit of so self-sacrificing an action. Still, a steady increase of investments on the one hand, and of deposits repayable on demand on the other, is not in strict accordance with the economic position of banks, whose principal function is to fertihse the fields of trade and industry, and to lend capital on the double basis of personal and collateral security ; maintaining always the liquidity of their assets. Besides, the more investments increase, the less liquid they tend to l)ecome. The adoption of the system of deposits for fixed periods would modify the economic objection, but it might increase the difficulty, by swelling the amount of borrowed capital. The natural sequel to this experience is a striking growth in the banking reserves. Among the large l)anks the Union and the Clydesdale show the largest propor- tional increases — a feature which is somewhat remark- able. But there was considerable room for iiiq)rovement o83029 38 SCOTTISH BANKING DURING THE from the rather low level occupied by them thirty years ago. They are followed by the National, whose reserves are nearly three times as large as formerly. The others . all show large increases, varying from 87 per cent, on the part of the British to 147 per cent, by the Commercial. The north country banks, especially the Caledonian and Town and County, are conspicuous in the matter of en- larging their reserves. The Union Bank gives the largest proportion to public liabilities, viz., 56 per cent. It is surely an abnormal position for a bank to hold more than half of its assets in the shape of investments and cash; and the case is the more remarkable, when it is that of the leading local bank of the commercial metropolis of Scotland, and having a larger number of branches than any of the other banks. The Commercial, the Town and County, the Clydesdale, and the Royal follow pretty closely above the general average of 48 per cent. The North of Scotland, the Caledonian, the Bank of Scotland, the National, and the British Linen graduate the list down to 42 per cent. The heritable property accounts have been very vari- ously treated by the different banks. Leaving out of account for the present the amounts which have been written off for depreciation, we find that the largest pro- portional increase has been made by the Commercial, which now holds nearly twice as much real estate as it did in 1879. This great addition is mainly due to Lon- don property, but bank buildings in Scotland have also added greatly to the account, which is natural from the large number of branches opened during the period. The Bank of Scotland and the British Linen Company have each increased their property by about a half, and the PERIOD OF PUBLISHED ACCOUNTS. 39 National is not very far behind. But the actual amounts in the two latter cases are considerably smaller than with some of the other banks. Less has been done in the matter of providing for depreciation than might have been expected, the general average being only 20'69 per cent, of the full cost. The Town and County stands first with 38^ per cent,, the Union being second with 29^ per cent., the British Linen, Caledonian, and Commer- cial follow with '28|, 25, and 24 per cent. The Bank of Scotland is not very far behind. Of the others, the Clydesdale alone has nearly attained the average. It is only just, however, to point out that both the National and the North of Scotland had, at an early period, made large provision for depreciation of bank buildings ; con- sequently this comparison does not give full justice to them. Several of the banks carry £5000 yearly to credit of bank buildings account, and the latest statements show more than the usual attention to this matter, the National having written off £20,000 and the Bank of Scotland and Union Bank £10,000 each. Branch extension has been a marked feature with all the banks, but while some were active in the earlier part of the period, and subsequently slackened their efforts, others reserved their energy for a later time. The Hoyal is a typical instance of the former policy, and the British Linen of the latter. Only the Commercial and the Clydesdale appear to have followed a steady policy in this respect. As it is, the relative places as regards number of offices have not altered in the thirty years so much as one would have supposed, although the differences are not so wide as formerly. That is to say that, generally, the })anks having fewest branches in 1865 have opened most 40 SCOTTISH BANKING DURING THE offices in the interim. But whereas the Union used to be distinctly first, the Commercial is now but little behind it, and the British Linen Company from being eighth is now fourth. Whether as a coincidence or as a result, the movement in these two cases has been accompanied by increased prosperity. But it should be borne in mind, that a strict comparison of proportionate increases from the number of offices previously open shows the progress to have been somewhat different, although even thus the British Linen Company comes out first. The two Aberdeen banks and the Bank of Scotland follow at some distance. The Commercial and Clydesdale are the only other banks over the average of 73 per cent. A careful study of the experience of the period does not show that prosperity and branch extension per se are co-related in any marked degree. This is confirmed by the somewhat unusual circumstance, in Scotland at least, of an extensive closing of branches, shown by the Commercial Bank last year. The same feature of diverse experience meets us when we examine the relative prices of the stocks of the different banks. All, with the exception of the Caledonian (which has so bravely overcome unmerited adverse fate), show improvement, but the degrees vary from 199 per cent, to 17 per cent. Again the British Linen Company heads the list with an increase of 199 per cent., and holds the place of the highest priced stock, irrespective of dividend. The National and Commercial come next with rises of 175 and 166 per cent. The Bank of Scotland and Town and County with 125 and 132 per cent, are the only others which exceed the average increase of 108i per cent. The Eoyal shows 66 per cent., the Union 45 per PERIOD OF PUBLISHED ACCOUNTS. 41 cent., the North of Scotland 40 per cent., and the Clydes- dale 17 per cent. The Caledonian Bank shows a fall of 25 per cent. As a concise summary of this chapter, we subjoin a table showing the relative positions of the banks at the various dates with which we have been dealing, on the basis of a conjoined examination of the relative positions as regards (1) total funds, (2) proportion of proprietors' funds to habilities, (3) subscribed capital, (4) banking reserves, (5) number of offices, (6) amount of net profits, and (7) proportion of dividend to proprietors' funds. In our next chapter we will discuss the profit and loss aspect of the banks' experience. Relative Positions of the Ten Banks. 1865. 1872. 1883. 1895. 1896. Better+ Worse - Bank of Scotland 4 6 3 6 6 - 2 Royal - - - - 1 1 1 2 3 - 2 British Linen 5 5 7 4 4 + 1 Commercial - - 2 3 4 1 1 + 1 National - - - 3 2 2 3 2 + 1 Union - - - - 6 4 5 5 5 + 1 Clydesdale - - - 7 7 6 7 7 Town and County 9 10 9 8 8 + 1 North of Scotland 8 8 8 9 9 - 1 Caledonian - - 10 9 10 10 10 42 SCOTTISH BANKING DURING THE CHAPTER IV. PROFIT AND LOSS. Theoretically a banker should not make losses. All his advances should be so judiciously placed that repay- ment is certain. In practice, however, over-fearfulness of loss cripples business ; and the banker who goes too much on the grip-for-grip principle finds his customers loth to trouble him. He, therefore, takes refuge in the insurance theory of averaging risks. Over a large num- ber of small loans some danger may be profitably run. But the case is very different with large advances. Dan- ger must, with them, be reduced to the irreducible mini- mum. An expert banker thus makes but a small per- centage of loss over a series of years. The late Mr. Laurence Robertson's management was so excellent that, for ten years during the early part of our period, the total loss to the Royal Bank on advances averaged only Is. l^d. per cent, per annum. On such a basis the total banking losses in Scotland should average at present about £35,000 per annum. It may be doubted, however, if in these latter days Mr. Robertson's experience is a common one — at least recent confessions are to a differ- ent tune. In any case, losses are to be expected, and must be provided for. It is, therefore, the practice, be- fore declaring the profits, to make ample provision, year by year, for all accounts about which the slightest doubt PERIOD OF PUBLISHED ACCOUNTS. 43 is felt ; and, over and above, to build up a fund for un- foreseen contingencies. This is irrespective of the reserve fund proper, drafts on which are only made as a last resort. There is, of course, no rule, either of principle or practice, as to the amount of such provision, but the prudent banker likes to err on the safe side. Probably 2 per cent, of the amount of the banking advances w^ould be a moderate figure to aim at as a minimum for such funds. Besides this, reservation has to be made for re- bate of interest on bills current, which is usually taken at a rate to more than cover the currency ; and all other ac- counting allowances are made on a liberal scale. Share- holders are apt to grumble at too ample reservation of profits ; but it is a policy which pays handsomely in the long run. Indeed, to conduct a bank on any other prin- ciple is simply to speculate on the future, and trust to that chapter of accidents which is usually an unfortunate one. The amount of profit thus ascertained constitutes the gross profits. From it there falls to be deducted the expenses of management. The remainder is what is usu- ally styled the net profits. The total amount of the declared net profits * of the Scottish banks (after adjustment to bring them into uni- form shape) was, in 18G5, £1,185,813; in 1872, £1,244,809; in 1883, £1,242,065; in 1895, £1,184,988; and last year, £1,300,240. t In the two first of these amounts the City of Glasgow Bank return is included, for which, perhaps, some deduction should be made on account of the apocryphal character of that bank's publications. * See table, chapter i. + The reports already issued for the current year show a further u crease of profits to the extent of £aG,000. 44 SCOTTISH BANKING DURING THE But in any case these figures show a surprising amount of steadiness when the magnitude of the sums involved is considered. Too much so, perhaps, for bankers' tastes ; but in contrast with the singular unprofitableness of other business in recent years, it is evident that the banker's ability to restrict his outgo as his income slackens is a great standby. When a more detailed examination of years is made, the apparent steadiness is somewhat modified owing to the comparative profitableness of the Appropriation of Profits. Thirty-three Years. Bank. Profits. Applied to Dividend. Bank ----- Roval - - . - British - - - - Commercial - - National - - - Union - - - - Clydesdale - - - Town and County North of Scotland Caledonian - - - Totals - - - Averages, per cent. Total Reserved ,, £5,402,905 6,189,100 5,451,561 5,134,297 5,327,924 4,662,765 4,037,574 1,024,175 1,407,643 528,667 £.39,166,611 £4,925,000 5,892,563 4,815,000 4,560,000 4,775,000 3,9.30,000 3,601,500 909,945 1,182,640 427,000 £35,018,648 89-41 Reserve Buildings Fund. Account. £257,834 £193,000 £27,071 205,165 444,919 434,297 527,195 544,765 309,000 65,980 192,003 58,268 61,682 160,000 140,000 25,729 155,000 117,000 48,250 22,000 23,000 £3,039,426 7-76 £945,661 2-41 10-59 Sundries. 29,690 31,642 33,000 10,074 11,000 20,399 £162,876 0-42 period of " leaps and bounds " in the nation's advancing prosperity. From 1873-8, inclusive, the profits were at high-water mark. There was also an improvement from 1881-3, and again from 1890-3 ; but in the intervals, and till lately, they have tended towards the old level. The highest point, until last year, was in 1874, when the profits were stated at £1,289,813 ; and the lowest was in 18(38, when they were returned at £1,037,180. The total PEEIOD OF PUBLISHED ACCOUNTS. 45 amount of profits declared by the ten banks during the thirty-two years is £87,780,662.* The under average years were 1865-72 inclusive, 1879-80, 1885-9, and 1894. But in the first specified period there was no actual depression in profits, the reason of the lower range being that the banks had not yet reached the fuller growth to which they subsequently attained. Of the large amount of profit we have stated, 89| per cent, was absorbed in dividend, and 10^ per cent, was reserved either as addition to the reserve funds proper, or as depreciation of build- ings, or otherwise. Thirty years ago, the dividend only amounted to 73i per cent, of the net profits. * The profits of the City of Glasgow Bank for fourteen years, and of the- Central Bank for one year, falling to be added to show the total amount of profits declared, are £1,523,413. In the appropriation of profits tables in this chapter, the profits declared during the first half of the current year (1897) are included, as also, in some cases, those for 1864. Other- wise, only the years 1865-96, inclusive, are dealt with. 46 SCOTTISH BANKING DURING THE Bank of Scotland. Net Profits. Application. Amount. Dividend. Reserved Funds. Bank Sundries. Rxlance Date. Rate per Cent. Amount. Added. With- drawn. Buildings. 1863, Dec. 31 9 1865, Feb. 28 *£161,775 ♦14 £140,000 £6929 £8000 1866, „ 128,658 lOi 105,000 5000 1867, „ 154,429 112" 120,000 25,000 5000 1868, „ 129,721 +12 120,000 25,000 5000 1869, „ 182,416 12 120,000 5000 1870, „ 123,776 12 120,000 (£17,071 i losses 1871, „ 182,.341 12 120,000 5000 1872, „ 137,572 12 120,000 5000 1873, „ 151,944 m 125,000 30,000 5000 1874, „ 165,221 18i 135,000 25,000 5000 1875, „ 175,639 14 140,000 80,000 5000 1876, „ 172,234 14 140,000 25,000 5000 /- 10,000 \ Centrl. VBk.a/c. 1877, „ 168,353 14 157,000 5000 1878, „ 183,826 14 175,000 5000 1879, „ 176,718 13^ 168,750 5000 1880, „ 168,633 18 162,500 5000 1881, „ 176,620 18 162,500 5000 1882, „ 177,501 13 162,500 25,000 5000 1883, „ 182,549 13^ 168,750 10,000 1884, „ 187,467 14 175,000 : 10,000 1885, „ 177,254 14 175,000 +5000 1886, „ 182,142 14 175,000 +5000 1887, „ 174,266 13J 168,750 +5000 1888, „ 169,204 13 162,500 +5000 1889, „ 162,040 124 156,250 + 5000 1890, „ 165,257 12 150,000 25,000 5000 1891, „ 172,102 13 162,500 5000 1892, „ 179,828 18 162,500 10,000 1898, „ 170,226 18 162,500 5000 1894, „ 173,124 13 162,500 5000 1895, „ 157,229 12 150 000 5000 1896, „ 161,003 12 150,000 10,000 1897, „ 27 172,-842 12 150,000 25,000 :i5,ooo 15,905 (Balnce) £5,402,905 £4,925,000 £257,834 £198,000 £27,071 91-15 % 4-77 % 3-57 % 0-51 % * 14 months, 3 dividends of 4i per cent., 4^ per cent, and 5 per cent. + Bonus 1 per cent, included. J £5000 on account of heritable property. PEKIOD OF PUBLISHED ACCOUNTS. 47 Bank op Scotland Reports. Abstract Observations. Year ending 28th Feb., 1865. David Davidson, treasurer. Fourteen months' profits ; previous balance, 31st Dec, 1863 ; 10 per cent, bonus to officers. 1867. Unusually profitable ; peculiar state of money market. 1870. Loss of £44,000 through Leith forgeries ; provided from P. and L. account. 1871. Bank premises account increased by buildings at H. 0., Glasgow, and Central Bk. branches;* increased transactions; continued low value of money ; no decided revival of trade. 1873. Bank Act, 1844, Amendment Bill : bonus to junior officers. 1876. Great stagnation in manufacturing industry and restricted general business ; issue of £375,000 new capital ; £250,000 paid up, at 200 per cent. 1877. £375,000 premium on new stock ; £840,000 to reserve ; £85,000 of! Central Bank purchase. 1879. Report of annual meeting ; bank's business had progressed ; aggravated commercial depression ; increased number of failures ; succession of bad harvests ; heritable property account written down year by year, now below value. 1880. Rate of profit unusually low ; long continued stagnation of trade ; recent revival of trade ; improved money rates ; James Adams Wenley appointed treasurer. 1881. Partial recovery of trade ; financial retrospect favourable ; Bank's Bill. 1883. Larger sum vrritten off property account, % Edinburgh, New Town office. 1884. Larger sum written off property account, "/^ exceptional improve- ments. 1885. Continued depression of industry ; absence of commercial demand for money ; hint of reduction of interest on deposits ; new set of bank notes. 1886. Depression extended to all the great industries ; low rates of interest ; hint of lowering dividend. 1887. Depression still prevailing, particularly in farming. 1888. Partial improvement ; profits moderate. 1889. Contraction of lending in Scotland ; centralisation of discounting in Loudon ; liberal appropriation necessary to meet bad debts. 1890. Business prosperous ; improved demand and prices ; higher money rates. 1891. Loan demands well maintained ; London rates better ; Baring crisis ; 10th Feb., robbery of £11,580 of bank notes in London, provided for out of year's profits. 1892. Bank's business well maintained ; new London office site pur- chased. 1898. State of money market and general business not satisfactory. 1894. Bank's business well maintained, especially the advances. 1895. Adverse condition of tlic money market ; bad debts above average. 1896. Ease in the money market ; rates low. 1897. Improvement of trade ; new London office. * During last four years. 48 SCOTTISH BANKING DUEING THE Royal Bask. Net Profits. Application. Dividend. Reserved Funds. Dundee Arnoimt. Bank Bmldings. Bank Balance Date. Purchase Rate. Amount. Added. With- drawn. Account. 1864, Sep. 24 £185,090 n £150,000 £35,090 1865, „ 23 177,941 in \3| 146,563 \ 75,000/ £53,745 1866, „ 21 223,742 8 157,333 20,000 £5000 £25,000 1867, „ 20 179,275 8 157,.333 6313 5000 1868, „ 18 167,344 8 156,000 20,000 1869, „ 17 178,131 8 156,667 20,000 5000 4690 1870, „ 23 175,624 8 158,667 1871, „ 22 170,813 8i 165,000 1872, „ 20 181,432 8i 170,000 1873, „ 19 199,328 9 180,000 65,000 1874, „ 18 207,178 9J 190,000 5000 1875, „ 17 204,310 9J 190,000 3944 1876, „ 22 199,305 H 190,000 3978 1877, „ 21 195,171 n 190,000 3426 1878, „ 20 197,067 H 190,000 43,454 2039 1879, Oct. 11 197,189 H 190,000 6017 1172 1880, „ 9 197.693 n 190,000 4579 3114 1881, „ 8 200,291 9* 190,000 9484 807 1882, „ 14 210,657 9J 190,000 18,258 2399 1883, „ 13 211,735 10 200,000 9574 2160 1884, „ 11 196,044 10 200,000 4894 938 1885, „ 10 183,992 9 180,000 3746 , 247 1886, „ 9 185,217 9 180,000 4484 1 732 1887, „ 8 185,121 9 180,000 4849 272 1888, „ 13 186,950 9 180.000 5032 1918 1889, „ 12 188,412 9 180,000 7805 607 1890, „ 11 192,077 9 180,000 10,883 1194 1891, „ 10 199,753 9 180,000 18,517 1236 1892, „ 8 183,682 9 180,000 1781 1901 1893, „ 14 188,995 9 180,000 5376 3619 1894, „ 13 107,003 8i 170,000 65,486 2489 1895, „ 12 164,345 8 160,000 2759 1586 1896, „ 10 168,193 8 160,000 6289 1904 £6,189,100 £5,892,563 £329,290 124,125 £124,125 £61,682 £29,690 £205,165 95-21 % B-32 % 0-99% 0-48% PERIOD OF PUBLISHED ACCOUNTS. 49 Royal Bank Reports. Abstract Observations. Year ending 23th Sept., 1865. Laurence Robertson, cashier. £45,320 16s. lOd. from suspense account not now required, to rest. 1866. £25,000 written off Dundee Bank purchase account. 1869. £4690, balance of Dundee Bank purchase account written off. 1870. [Dividend paid free of income tax, 2nd half-year and subsequently.] 1871. James Simpson Fleming, cashier. £30,000 to reserve for dividend equalisation. 1872. Application to Parliament for extension of banking powers. 1873. £100,000 added to rest (including £30,000 as at 1871 above) [15 per cent, bonus on salaries to officers]. 1874. London Branch opened (Aug.). 1875. Mercantile and financial embarrassment ; opposed Bill to " amend the Bankers Acts". 1876. Continued depression in trade, and difficulty of employing money. 1877. Issue of £180,000 stock held by bank at 220 per cent. (Dec.) ; sale of Douglas Hotel for £50,000, and the profit (£20,672) written off London property account. 1878. City of Glasgow Bank failure ; long period of extreme depression in trade, and three bad harvests had decreased deposits ; good harvest, 1878 [5 per cent, bonus to officers]. Oct., 1879. Proprietors declined to appoint auditors ; stagnation in trade ; London money rates almost nominal. 1880. Great inactivity of trade, and difficulty in finding permanent investments; bill for extended powers; continued low rates and absence of demand. 1881. Treasury suggestion of a State Legal Tender Note Issue declined ; appointment of auditors. 1882. Healthier state of the money market. 1883. Death of William Thomas Thomson, director. [£5000 presented to cashier.] 1884. Stagnation of trade, and difficulty of employing money. 1885. Changes with regard to rates of interest and discount. 1886. Death of George Mitchell Inncs, director. 1890. Baring crisis and guarantee [£300,000 subscribed]. 1892. David Robertson Williamson Huie, cashier. 1894. Great increase of difficulty in employing money; exceptionally low rates ; considerable losses, chiefly at Dundee. SCOTTISH BANKING DURING THE Bbitish Linen Company. Net Profits. Application. Dividend. 1 Reserved Funds. Deprecia- Bank tion of Govern- ment Funds. Balnnce Diti/c Amount/. Rate Per Cent. Amount. Added. With- drawn. Buildings. 1863, Apr 15 / Balance V £2903 11 1864, „ 15 118,217 11 £110,000 1865, „ 15 151,642 11 110,000 £10,000 £10,000 1866, „ 14 131,432 11 110,000 5000 21,642 1867, „ 15 157,270 *13 130,000 5000 1868, „ 15 137,138 *13 130,000 £40,840 5000 1869, „ 15 139,307 *13 130,000 4307 5000 1870, „ 15 136,073 *13 130,000 1073 5000 1871, „ 15 137,432 *13 130,000 2432 5000 1872, „ 15 143,540 *13 130,000 1349 5000 1873, „ 15 134,218 *13 130,000 1874, „ 15 163,389 *13 130,000 5000 1875, „ 15 160,000 *18 130,000 5000 1876, „ 15 150,281 13 130,000 5000 1877, „ 14 158,149 14 140,000 13,149 5000 1878, „ 15 160,199 14 140,000 20,199 1879, „ 15 144,254 13^ 135,000 88,259 5000 1880, „ 15 145,223 13 130,000 5000 1881, „ 15 173,333 13 130,000 50,000 5000 1882, „ 15 154,236 14 140,000 5000 1883, „ 14 154,418 14 140,000 5000 1884, „ 15 153,766 14 140,000 5000 1885, „ 15 147,084 14 140,000 5000 1886, „ 15 157,874 14 140,000 25,000 5000 1887, „ 15 151,287 14 140,000 5000 1888, „ 14 152,745 14 140,000 25,000 5000 1889, „ 15 158,141 14 140,000 5000 1890, „ 15 163,796 14 140,000 25,000 5000 1891, „ 15 174,113 14 140,000 25,000 5000 1892, „ 15 185,418 14 140,000 50,000 5000 1893, „ 15 194,341 15 170,000 5000 1894, „ 14 210,177 15 187,500 5000 1895, „ 15 202,071 15 187,500 5000 1896, „ 15 215,744 16 200,000 32,364 6000 1897, „ 15 232,350 18* 225,000 40,947 (Balnce 5000 £5,451,561 £4,815,000 £444,919 £160,000 £31,642 88-32 % 8-16 % 1 1 2-93 % 0-59 Including bonus. PEEIOD OF PUBLISHED ACCOUNTS. 51 Bbitish Linen Bank Reports. Abstract Observations. 1865. Patrick Brodie, manager. Government funds written down £10,000. 1866. Recent heavy depreciation of Government securities ; balance of last year's profits, £21,642, applied in reduction of cost, bring down to market price. 1867. James Syme, manager [late assistant-manager, Union Bank, Glasgow]. Profits in excess of any previous year, from excep- tional causes. 1873. One of the most prosperous years but for losses from failure of Peter Lawson & Son, and defalcations at Newton-Stewart Branch ; met by sums set aside for contingencies and from profits of year, without affecting rest. 1875. £15,000 previously written off loss recovered. 1876. £65,000 applied towards allowing full year's dividend to be declared forward ; depressed state of trade. 1877. £18,000 recoveries. 1878. 2nd Feb. London Office opened. 1879. Banking disasters ; deposits augmented ; auditors appointed ; dividend arrangement of 1876 reversed. [Printed report of meeting.] 1880. Further additions to deposits ; value of money unremunerative ; ten additional buildings, ninety-nine offices, sixty-eight property of bank, including H. 0., average price £2600; London office removed to 41 Lombard Street. [18th Nov., Circular as to Bills.] 1881. Correspondence with treasury ; bills meet with opposition which could only be averted by surrendering right of note issue to be replaced by State Legal Tender Issue ; valuable unexhausted powers of which advantage may be taken. 1882. Stock of bank allocated to proprietors, from which, and conversion of an investment, £200,000 added to rest, now increased to £750,000. 1886. Hamilton Andrew Hotson, manager, on Mr. Syme's resignation. 1891. Threatened serious crisis through Barings, guarantee of £300,000. 1892. Issue of £250,000 new stock at 300 per cent., making Capital, £1,250,000, and Reserve Fund, £1,400,000. 1893. Baring guarantee reduced to £75,000. 1896. £67,636 special profits on realisation of securities to Reserve Fund. 1897. £103,407 special profits on realisation of securities to Pension Reserve Fund. 62 SCOTTISH BANKING DURING THE Commercial Bank. Net Profits. Application. Balance Date. Amount. Dividend. Reserved Funds. Bank Bate Per Cent. Amount. Added. With- drawn. Buildings. 1864, Oct. 31 £124,906 10 £90,000 £34,906 1865, 130,913 m 105,000 20,913 £5000 1866, 155,262 m 115,000 35,262 5000 1867, 165,511 *14 140,000 20,511 5000 1868, 164,338 14 140,000 19,338 5000 1869, Nov. 1 146,867 14 140,000 4867 5000 1870, Oct. 31 152,168 14 140,000 7168 5000 1871, 153,552 14 140,000 8552 5000 1872, 158,095 14 140,000 13,095 5000 1873, 165,857 15 150,000 10,857 5000 1874, 168,180 15 150,000 13,180 5000 1875, Nov. 1 160,712 15 150,000 5712 5000 1876, Oct. 31 155,538 15 150,000 3538 2000 1877, 157,788 15 150,000 4788 3000 1878, 143,024 13 130,000 11,024 2000 1879, 111,806 12 120,000 £8194 1880, Nov. 1 151,076 13 130,000 10,837 5000 1881, Oct. 31 146,437 13 130,000 5810 5000 1882, 147,472 14 140,000 10,000 2000 1883, 151,106 14 140,000 5000 3000 1884, 147,530 14 140,000 5000 3000 1885, 148,092 14 140,000 3000 1886, Nov. 1 147,037 14 140,000 5000 1887, Oct. 31 146,024 14 140,000 5000 1888, 151,508 14 140,000 10,000 1889, 158,211 14 140,000 25,000 5000 1890, 168,250 14 140,000 25,000 5000 1891, 175,206 14 140,000 25,000 5000 1892, 165,490 14 140,000 25,000 5000 1893, 181,471 15 150,000 25,000 5000 1894, 165,770 15 150,000 5000 1895, 176,477 15 150,000 25,000 5000 1896, 192,623 16 160,000 25,000 5000 £5,134,297 £4,560,000 £425,358 £8194 £140,000 8194 £417,164 17,133 (Blnce) £434,297 88-82 % 8-46 % 2-72 % Including bonus. PERIOD OF PUBLISHED ACCOUNTS. 53 Commercial Bank Reports. Abstract Observations. 1864. Alexander Kincaid Mackenzie, manager. 1865. Capital raised from £800,000 to £1,000,000 by transfer from rest; dividend free of tax. 1867. Profits exceptionally large. 1868. [1st Jan. Apology by Daily Bevieiu for supposition of excep- tional means of earning profits.] 1878. City of Glasgow Bank failure ; directors not engaged in trade ; no foreign or colonial investments ; ample yearly provision for bad debts ; only one £100,000 advance ; losses above average ; deposits decreased ; diminished trade profits ; investment com- pany competition ; investments £180,000 above book price. 1879. Great depression in trade and agriculture ; losses greater than usual ; many failures ; bad seasons and low prices ; invest- ments £200,000 over book price ; bank premises stand in books at £180,128, cost £364,000 ; heritable property yielding 6| per cent, net ; and auditors. 1880. Gradual general improvement in business and agriculture. 1881. Sale of £56,000 of bank's own stock at 250 per cent. (Aug.) ; profit £89,190; registration as limited; 17th Dec, stock converted into shares ; improvement in business, but much depression in agriculture. 1882. Robert Luff Peploe, manager; 10th Feb., capital increased to £5,000,000, and limited liability adopted ; 3rd April, registra- tion. 1883. Less remunerative rates ; losses moderate ; July, London Branch opened. 1884. Oct. Andrew Aikman, manager ; low value of money ; dulness of trade. 1885. Depression prevailing feature in most branches of business and in agriculture ; extended powers of investment, India, colonies, and U.S.A. (Govt.). 1886. Continued dulness of trade ; depression in agriculture ; low value of money. 1887. Higher average value of money. 1888. Greater margin of banking profit, but decreased amount employed ; purchase of Lloyds, Barnetts & Bosanquet's office, London. 1890. Guarantee for Baring Brothers & Co.'s obligations. 1891. Result of year's business exceptionally favourable. 1894. Discharge of Baring guarantee (Jan., 1895). 1895. Profit on investments always added to fund for losses ; for some years bad debts unimportant ; transfer of £100,000 to Reserve Fund, leaving an)ple sum for contingencies. 54 SCOTTISH BANKING DURING THE National Bank. Net Profits. Application. Dividend. Reserved Funds. , nee Date. Amount. Bank Bala Buildings. Rate Per Cent. Amount. £100,000 Added. With- drawn. 1864, Nov. 1 £125,023 10 £25,023 1865, ,, 132,140 11 110,000 22,140 1866, ,, 151,711 *12 120,000 23,211 1867, ,, 133,610 12 120,000 13,610 1868, Oct. 31 155,346 *14 140,000 15,346 1869, Nov. 1 141,495 13 130,000 11,495 1870, ,, 145,927 13 130,000 8280 1871, ,, 165,405 *16 160,000 5000 1872, ,, 158,902 *14J 145,000 7000 £5700 1873, ,, 199,011 *16 160,000 38,000 1874, Oct. 31 184,645 16 160,000 20,000 1875, Nov. 1 158,351 *15 150,000 10,000 1876, ,, 167,699 15 150,000 18,000 1877, ,, 189,115 15 150,000 42,000 1878, ,, 158,521 15 150,000 1879, ,, 131,802 13 130,000 1880, ,, 155,290 *14 140,000 15,000 1881, ,, 180,225 *15 150,000 30,000 1882, ,, 174,897 15 150,000 23,068 1883, ,, 175,102 *16 160,000 20,000 1884, ,, 162,152 16 160,000 1885, Oct. 31 155,082 *15 150,000 1886, Nov. 1 154,923 15 150,000 10,000 1887, ,, 152,788 15 150,000 1888, ,, 156,031 15 150,000 10,000 1889, ,, 171,116 15 150,000 20,000 1890, ,, 176,594 15 150,000 25,000 1891, Oct. 31 173,394 15 150,000 25,000 1892, Nov. 1 161,322 15 150,000 10,000 1893, ,, 171,142 15 150,000 25,000 1894, ,, 156,828 15 150,000 1895, „ 159,041 15 150,000 5000 1896, " 198,344 £5,327,924 *16 160,000 30,000 20,029 £4,775,000 £507,173 £25,729 20,022 (Balnce) £527,195 89-62 % 9-90 % 1 0-48% Including bonus. PERIOD OF PUBLISHED ACCOUNTS. 55 National Bank Reports. Abstract Observations. 1864. William James Duncan, manager. London Branch open. 1865. Dividend and bonus free of income tax. 1866. Sums laid aside for depreciation of heritable property and the public funds ; £8500 laid aside for unforeseen contingencies. 1867. Sums laid aside for depreciation of heritable property and the public funds ; the £8500 last year had not been required and was again carried forward. 1868. Incidental profits enabling bonus of 2 per cent.; the £8500 again carried forward. 1869. The £8500 again carried forward. 1870. £5110 written off heritable property. 1871. Depreciation of property provided for ; sundry incidental profits. 1872. No casual sources of income. 1873. Sundry incidental profits; large increase of bank's business last two or three j-ears ; depreciation of property provided for. 1874. Depreciation of property provided for. 1875. Depreciation of property provided for ; rate of earning lower than usual. 1876. Depreciation of property provided for ; long continued low rate of interest ; bad debts above average. 1877. Depreciation of property provided for ; low value of money ; losses unusually small ; variety of casual profits ; £30,000 transferred from provision for losses to rest. 1878. Singularly even flow of business ; steady moderate rate of profit ; singularly moderate amount of losses ; large number of failures ; losses indirectly from City Bank failure, not exceed £5000 ; properties stand in books at sum far within estimated value ; very ample guarantee fund against risks of loss ; London and Glasgow offices entirely satisfactory ; Government securities stand at low prices ; steady application of sound principles of business. 1879. Results not so favourable as usual ; unusually low value of money, and further difficulty of employing money; large accession of business ; unfavourable state of mercantile and agricultural pursuits ; losses above average ; business sound and satisfactory. 1880. Very moderate rate of profits ; losses very moderate ; letters and articles in newspapers about limited liability. 1881. Thomas Hector Smith, manager. Rate of profit very moderate ; incidental profits ; losses unusually small ; very ample provision for safety. Mr. Duncan's retirement. 1882. Registration as limited (8rd Apr.) ; good demand for money at fair rates ; sale of £41,918 10s. of bank's own stock, realising profit of £71,932 7s. lid. 1883. Satisfactory results. 1884. Low value of money ; unsatisfactory state of business. 1885. General depression of trade ; difficulty of fully employing funds. 1886. Circumstances similar to last year. 1889. Improvement in business generally. 1890. Baring crisis and guarantee referred to. 1891. Business in every way satisfactory. 1892. Condition of money market unfavourable. 1894. Very restricted demand for advances ; abnormally low rates. 1895. Circumstances similar to those of 1894, unfavourable. 1896. Satisfactory results of tlic past year's business. 56 SCOTTISH BANKING DURING THE Union Bank. Net Profits. Application. Dividend. Reserved Funds. Bank Collie Balance [Jate. Amount. Rate Per Cent. Amount. Added. With- drawn. Bldngs. Losses. 1864, Apr. 2 £118,168 8 £80,000 £38,168 1865, , , 1 148,028 8 80,000 63,028 £5000 1866, , , 2 136,304 9 90,000 41,304 6000 1867, , , 2 163,619 10 100,000 36,300 6000 1868, , , 2 121,783 10 100,000 20,000 6000 1869, , , 2 129,068 11 110,000 20,000 5000 1870, , , 2 135,633 12 120,000 10,000 6000 1871, , , 1 132,363 12 120,000 7000 6000 1872, , . 2 140,356 13 130.000 5000 6000 1873, , , 2 160,597 15 160,000 10,000 1874, , , 2 162,583 15 150,000 6000 6000 1875, , , 2 161,494 15 150,000 7000 5000 1876, , , 1 156,309 13 130,000 £33,000 1877, , , 2 145,024 13 130,000 15,000 1878, , , 2 146,446 13 130,000 15,000 1879, , , 2 131,434 12 120,000 5000 1880, , , 2 127,553 12 120,000 5000 1881, , , 2 133,172 12 120,000 10,000 5000 1882, , , 1 133,165 12 120,000 10,000 5000 ' 1883, , , 2 145,793 12 120,000 20,000 5000 1884, , , 2 137,662 12 120,000 10,000 5000 1885, , , 2 117,095 12 120,000 1886, , , 2 127,102 12 120,000 i 5000 1887, , , 2 125,060 12 120,000 1 5000 1888, , , 2 132,980 11 110,000 20,000 5000 1889, , , 2 134,486 11 110,000 20,000 6000 1890, , , 2 133,354 11 110,000 20,000 6000 1891, , , 2 129,604 11 110,000 10,000 6000 1892, , , 2 131,007 11 110,000 20,000 6000 1893, , , 2 131,644 11 110,000 15,000 6000 1894, , , 2 135,049 11 110,000 20,000 6000 1895, , , 2 * 115,940 10 100,000 10,000 5000 1896, , , 2 137,215 10 100,000 25,000 10,00 1897, , , 2 145,675 11 110,000 25,000 25,965 (Balnce) 6000 £4,662,765 £3,930,000 £544,765 £155,000 £33,000 84-50 % 11-44 % 3-33 % 0-73 % PERIOD OF PUBLISHED ACCOUNTS. 57 Union Bank Reports. Abstract Observations. 1864. James Robertson and Charles Gairdner, joint managers (1862). Perth Bank purchase account gradually reduced since 1857, balance, £36,956 7s., now written off entirely; £30,000 brought from guarantee fund to P. and L. 1865. Charles Gairdner, manager ; Mr. Robertson's retirement. Another prosperous year. 1867. Death of Sir John Stuart Forbes, Bart., Chairman ; and Sir Adam Hay, Bart., for fifty years partner of Forbes & Co., and director of bank. 1868. Alterations of bank's contract. 1869. Number of directors fixed at ten [a reduction]. 1873. Recoveries from old outstanding accounts (which, in 1862, occa- sioned anxiety, and transfer of large sum from rest), and other receiiJts, £62,447 8s. 7d. ; £62,000 restored to rest. 1874. Bad debts exceptionally large ; death of Adam Black, director. 1875. Alteration of contract. 1876. Heavy loss by failures in London ; false and fraudulent representa- tions in reference to securities ; warrant for apprehension of Alexander Collie, evaded by flight ; £120,000 transferred to strengthen fund for provision for losses ; £87,000 from rest, and £33,000 from P. and L. 1877. Great depression in trade ; money rates unusually low. 1878. 28th March. London Branch opened ; chief officer to be styled general manager. 1879. Banking and commercial disasters ; bank but little affected ; new head offices ; bank owns seventy-nine branch offices ; auditors appointed. 1880. Margin of profit unusually low. 1881. Limited liability question making progress towards solution. 1882. Brd April. Registered as limited ; dividend warrants to be sent by post. 1885. Low margin of profit ; continued depression in trade. 1886. Diminishing demand for money, as in preceding year ; slight altera- tion in contract of co-partnery. 1887. More hopeful feeling regarding trade. 1888. Marquess of Bute elected chairman. 1889. Death of Dr. Anderson Kirkwood, director. 1891. Baring difficulties, and guarantee of £300,000; death of Mr. A. B. AI'Grigor. 1895. Robert Blyth, general manager. Depression in trade ; more than usual difficulty in remunerative employment of money ; Baring guarantee extinguished without loss ; Dr. Gairdner's resigna- tion. 1896. Death of Sir John Adam Hay, Bart., director. SCOTTISH BANKING DURING THE Clydesdale Bank. Net Profits. Application. Dividend. Reserved Funds. Bank Deprecia- Balance Date. Amount. Rate Per Cent. Amount. Added. With- drawn. Buildings. Consola. 1864, June 14 £9508 9 1865, 112,151 *4i £40,500 £15,000 £5000 1865, Dec. 31 56,073 10 90,000 15,000 3000 1866, „ 122,558 10 90,000 10,000 7000 £10,074 1867, 95,254 10 90,000 5000 1868, „ 102,968 til 99,000 8000 2000 1869, „ 113,015 11 99,000 7000 3000 1870, 119,969 J12 108,000 5000 §10,000 1871, 117,804 12 108,000 10,000 1872, „ 137,421 13 117,000 5000 1873, 153,740 14 140,000 19,663 1874, 144,914 14 140,000 5000 1875, 129.114 14 140,000 1876, „ 137,667 14 140,000 1877, 140,419 14 140,000 1878, „ 120,635 12 120,000 1879, 106,690 11 110,000 1880, 126,597 12 120,000 1881, 138,934 12 120,000 10,000 5000 1882, 14.3,312 18 130,000 8694 1883, 125,472 12 120.000 6000 1884, 114,458 12 120,000 1885, „ 126,884 12 120,000 5000 1886, 121,798 10 100,000 27,329 1887, „ 112,800 10 100,000 7000 3000 1888, 107,851 10 100.000 5000 8000 1889, „ 119,261 10 100,000 10,000 7500 1890, 180,148 10 100,000 25,000 5000 1891, „ 181,738 10 100,000 25,000 5000 1892, 125,688 10 100,000 20,000 5000 1893, „ 130,025 10 100,000 25,000 5000 1894, 114,439 10 100,000 10,000 1895, „ 121.249 10 100,000 19,665 5000 1896, 132,035 10 100,000 25,000 7500 £4,037,574 £3,601,500 £297,851 £117,000 £10,074 11,649 (Balnce) £309,000 89-19 % 7-65% 2-90% 0-25% Half-year, t Not ex. income tax. t lucluding bonus. § °/h site for new H, O. PEEIOD OF PUBLISHED ACCOUNTS. 59 Clydesdale Bank Reports. Abstract Observations. 1864. George Readmau, manager. 1865. Period (to June) one of more than usual anxiety in banking affairs ; great fluctuation in value of money, goods, and produce ; mercantile failures ; banking profits very satisfactory ; altera- tion of balance to 81st Dec. 1866. Profits exceptional ; dividend free of income tax. 1867. Reduced value of money ; general contraction of business ; difficulty of finding employment for capital. 1868. Value of money unusually low. 1869. Some improvement in value and demand for money ; trade of Glasgow sound. 1870. Site of new Head Office acquired. 1871. Recovery of £10,074 of previous depreciation in securities now realised, of whicli £10,000 carried to Reserve Fund in addition to £10,000 from P. and L. 1872. High value of monej' ; unusual freedom from bad debts. 1873. Profits most satisfactory ; £30,000 from recoveries and premium realised ; £100,000 new stock issued to proprietors at 240 per cent, with accrued dividend (2nd March) ; branches to be opened in Cumberland, at Carlisle, Workington, and Whitehaven. 1874. New H. 0. opened ; value of money under average ; bad debts more than usual ; INIiller Street premises sold at profit of £25,000, distributed as bonus of 2i per cent. ; Superannuation Fund proposed ; £200,000 added to Reserve Fund. 1875. Numerous mercantile failures ; £15,000 special provision for bad debts. 1876. Dulness of trade ; very low price of money. 1877. 1st Dec. London Branch opened ; retiring directors to be ineligible for one year. 1878. Bad debts considerably in excess of average; chief officer to be designated general manager ; advances of every kind in a satis- factory state ; every bad debt written off, and ample provision made for doubtful cases; freehold premises bought in London. 1879. Unfavourable for banking ; trade much depressed ; bad debts incurred ; large unemployed funds ; advances in a sound state ; auditors appointed ; only one retiring director to be disqualified. [Annual Meeting, proceedings printed.] 1880. John Maxwell Cunningham, general manager. Improvement in business of country, but value of money low ; fair demand for capital ; adoption of limited liability engaging attention. Mr. Readman's resignation. 1881. Improvement in trade; agricultural depression; rates for money low till Oct. ; adoption of limited liability ; conversion of stock into shares ; and alteration of contract proposed. 1882. Profit of £41,805 15s. on sale of own shares carried to Reserve Fund; 3rd Apr., registered as The Clydesdale Bank, Limited; dividend warrants to be sent by post. 1883. Bad debts exceeded average ; shortening transfer closing period. 1885. Depression of agricultural, commercial, and manufacturing in- terests, but business of bank well maintained and resources fully ernploj-ed. 1886. George Readman, managing director. Heavy exceptional losses from extreme depression in produce, and on other accounts; £132,000 transferred from Reserve Fund to a suspense account, and £27,329 from year's profits. Mr. Cumiiiigham's resignation. 1887. George Readman, managing director; David Wilson, general manager. Last year's transfers to suspense found sufficient ; business satisfactory; directors to bo not fewer than seven or more than nine. 1888. David Wilson, general manager. Reserve Fund now £440,000. 1889. Extension of sphere from wliich directors may be chosen. 1890. Baring guarantee ; alterations of contract carried out. 1891. Reserve Fund now £500,000. 1894. Exceptional losses, £114,605 at Dundee, written off Rosorvc Fund; Baring guarantee cancelled lltli Feb., 1895; purchase of more freehold property in London. 60 SCOTTISH BANKING DURING THE Town and County Bank. Net Profits. Application. 1 Dividend. Reserved Funds. Amount. Bank Balance Date. Rivte Per Cent. Amount. Added. With- drawn. Buildings. 1864, Jan. 31 Bal., £435 10 1865, 30,529 10 £15,600 £14,000 £1250 1866, 27,937 10 15,600 11,000 1250 1867, 31,024 10 18,200 10,000 1250 1868, 27,913 10 18,200 10,000 1250 1869, 19,825 10 18,200 1250 1870, 19,583 10 18,200 1500 1871, 21,408 10 18,200 2000 1500 1872, 23,138 10 18,200 3000 1500 1878, 22,714 Hi 20,475 1500 1874, 32,923 m 31,500 1500 1875, 33,777 12i 31,500 1500 1876, 36,982 13f .34,650 1500 1877, 36,277 131 34,650 1500 1878, 36,286 13i 34,650 1500 1879, 32,387 12J 31,500 1500 1880, 31,769 m 31.500 1500 1881, 32,826 12i 31,500 1500 1882, 33,068 12* 31,500 1500 1883, .32,650 12* 31,500 1500 1884, 30.470 lU 28,980 1500 1885, 30,748 Hi 28,980 1500 1886, 31,066 lU 28,980 1500 1887, 31,368 11* 29,010 1500 1888, 31,412 11* 29,610 1500 1889, 32,437 12 30,240 1500 1890, 32,566 12 30,240 1500 1891, 32,884 12 30,240 1500 1892, 32,949 12 30,240 4000 1500 1893, 34,461 12i 31,500 1500 1894, 34,646 12i 31,500 4000 1500 1895, .34,372 12J 31,500 1500 1896, 35,906 12* 31,500 4000 1500 1897, 35,439 12i 31,500 3980 (Bal.) 1500 £1,024,175 £909,945 £65,980 £48,250 88-85 % 6-43 % 4-72 % PERIOD OF PUBLISHED ACCOUNTS. 61 Town and County Bank Reports. Absteact Observations. 1865. William Littlejohn, manager and cashier. Exceptional state of money market (to 31st Jan.). 1866. Altered condition of money market ; £26,000 transferred from guarantee fund to capital and bonus of £1 per share. In 1862 a similar transference was made. 1867. Satisfactory condition of money market, and increasing business. 1868. Unusually low rates for money. 1870. £25,000 written off guarantee fund to meet depression of market value of some investments and securities. 1872. £15,000 restored to guarantee fund by improvement in value of investments and securities. 1873. 10,000 new shares issued (12th June, 1872) at £7 premium ; £70,000 carried to guarantee fund ; two sub-offices to be opened in Aberdeen — Western and Northern. 1874. £3150 casual profits ; harbour branch, Aberdeen, opened ; also branches in Dundee, Perth and Fochabers. 1875. Bank in sound and prosperous condition ; Superannuation Fund established to mark fiftieth anniversary. 1876. 500 guineas (including piece plate) presented to manager ; George Livingston Rorie, assistant manager (1st Dec, 1875). 1877. £10,000 restored to guarantee fund from profits on investments realised, etc., and £1000 added also from casual profits. 1878. George Livingston Rorie, manager and cashier, 31st January ; Mr. Littlejohn retiring. Proposal to issue more sliares delayed. 1879. Bank buildings written down 33^ per cent, of original cost ; ex- pectation of Government measure on joint stock banks ; expiry of contract, 5th March, 1880 ; proposed prorogation for twenty- one years ; all bad and doubtful debts amply provided for, and assurance of soundness. 1880. Long continued depression in trade ; bad harvests ; low rates ; scarcity of investments ; limited lialDility question ; prorogation of contract till 1901. 1881. Limited liability still under consideration. 1882. No material increase in demand for money ; to be registered as limited on 3rd April. 1884. John Findlater, manager and cashier. Profits and losses both over average ; depression of trade and agriculture ; advances sound and healthy. 1885. Continued depression in agricultural and commercial affairs. 1886. Losses heavier than ordinary ; continued depression in agricultural and commercial affairs. 1887. Fairly remunerative employment for funds ; low prices of cereals and live stock. 1888. Profits satisfactory ; last three years' losses chiefly by failures in herring-curing trade ; ample provision made ; less demand for money. 1889. Business satisfactory, but deposit receipt rate too high. 1890. No special remarks. 1891. Death of Mr. Findlater, manager. 1892. Thomas Cochrane, manager and cashier. 62 SCOTTISH BANKING DURING THE North op Scotland Bank. Net Profits. Application. Amount. Dividend. Reserved Funds. Bank Buildings. Deprecia- tion of Balance Date. Rate Per Cent. Amount. Added. With- drawn. Consols. 1864, Sep. 30 /"Balance \ £1295 10 £3500 1865, 38.475 10 £28,000 £10,000 1866, „ 41,527 10 28,000 10,000 1867, 38,004 10 28,000 10,000 1868, 33,495 10 28,000 5000 1869, 84,209 10 32,000 2500 1870, 34.580 10 32,000 2500 1871, „ 37,135 10 32,000 5000 1872, 37,654 10 32,000 6000 1873, „ 40,186 10 32,000 10,000 1874, 45,236 nii 36,000 9000 1875, „ 50,291 12* 46,294 £2000 1876, 52,.309 12i 49,108 1000 1877, 55,192 *1.3f 54,145 1000 1878, 54,066 12^ 49,312 1000 1879, „ 52,233 12i 49,313 8000 1880, 51,569 m 49,312 1881, 51,800 12* 49,656 466 2000 1882, 50,661 12* 50,000 1883, „ 49,936 12* 50,000 1000 1884, 52,504 m 50,000 2000 1885, 52,848 12* 50,000 2500 1886, 54,863 12* 50,000 5000 2500 1887, 50,938 12* 50,000 1000 1888, 41,045 6| 25,000 15,000 1889, 36,131 6| 25,000 10,000 1890, 36,176 6i 25,000 7500 7500 1891, „ 36,596 H 25,000 10,000 1000 1892, 37,086 6i 25,000 10,000 1000 1893, „ 37,383 H 25,000 12,500 tiooo 1894, 38,714 6i 25,000 12,500 tiooo 1895, 40,110 H 25,000 12,500 tiooo 1896, 43,396 £1,407,643 6-875 27,500 17,500 £1037 (Balnce) tiooo £1,182,640 £22,000 £11,000 £192,003 84-02 % 13-64 % 1-56 % 0-78% * Including bonus. + Heritable Property Account. PERIOD OF PUBLISHED ACCOUNTS. 63 NoETH OP Scotland Bank Reports. Abstract Observations. 1864. Death of Mr. Westland, manager. 1865. Jan. Robert Lumsden, manager. Rates of interest less remunera- tive ; some losses of an exceptional character. 1866. Continued depression of consols ; £3500 applied to reduce cost. 1867. Low rates of interest ; business of bank prosperous. 1868. Low rates of interest ; £15,000 applied to reduce investments to market value ; £-10,000, or 10s. per share, added to capital from Reserve Fund. 1869. Slight improvement in return for money. 1870. Great rise in value of money in July ; proposed reduction of direc- tors from eleven to seven objected to by board ; sub-ofifice in Aberdeen opened. 1871. Qualification of directors increased from fifty to 100 shares. 1872. Business satisfactory ; £9000 replaced to Reserve Fund from favour- able realisation of stocks. 1873. Town branches in Aberdeen. 1874. Prosperous business ; bonus of 25s. per cent. ; issue of 9706 nev? shares at £9 to shareholders ; £6000 restored to Reserve Fund. 1875. Desire to reduce Property Account greatly below actual value ; issue of 7338 shares at £10 ; premiums received, £92,558. 1876. Issue of 364 shares at £6, and 992 at £7 premium ; depression of trade ; premium, £9128. Profits narrow, business contracted. 1877. £3209 12s. recoveries applied to form nucleus of Ofificials' Benefit Fund ; £1440 premiums on new shares. 1878. Above fund made a mutual guarantee fund, bank giving five yearly sums of £250 ; City of Glasgow Bank ; general depression in agriculture and trade ; excellent harvest, 1879. Depression of trade ; Banking and Joint Stock Companies Bill ; audit ; £8000 written off for contingencies. 1880. Edward Fiddes, joint manager. Slight recovery from long depres- sion of trade, but rates of interest low. 1881. Issue of 1375 new shares, at £9092 lis. 3d. premium ; limited liability desired. 1882. Registration as limited ; agricultural depression passing away. 1883. Rates of interest more remunerative. 1884. Increased trade demand for money. 1885. Depression in trade and agriculture. 1886. Depreciation and unsaleableness of landed property ; £18,000 written off certain advances from Reserve Fund. 1887. Fishcuring trade crisis ; £100,000 written off Reserve Fund. 1888. Edward Fiddes, manager. £100,000 (balance) written ofT Reserve Fund, and £15,000 from year's profits. 1889. George Anderson, manager. Adverse rates of interest, and lower investment returns ; death of Mr. Fiddes. 1890. Large increase in business ; sliarp fall in prices of investment stocks; £7500 applied in reduction of prices. 1891. Business of bank has prospered. 1896. £7500 from exceptional profits added to Reserve Fund. (34 SCOTTISH BANKING DURING THE Caledonian Bank. Net Profits. Application. Dividend. Reserved Funds. Balance Date. Amount. Bank Bldings. Deprecia- Rate Per Cent. Amount. Added. With- drawn. tion. 1864, June 30 /Balance \ £766 9 1865, „ 23,186 10 £12,500 £9000 £750 1866, 16,076 10 12,500 4000 750 1867, „ 18,342 10 12,500 4000 750 1868, 17,134 10 12,500 4000 750 1869, 17,009 11 13,750 2000 1000 1870, 17,288 12 15,000 1000 1871, 18,070 12 15,000 2000 1000 1872, 24,499 *14 17,500 8500 1000 1873, 18,717 14 17,500 1000 1874, 18,694 14 17,500 1000 1875, 20,831 14 17,500 1000 1876, „ 24,186 14 21,000 5500 1877, 24,117 14 21,000 1878, 22,682 14 21,000 1879, 10,552 nil. £16,399 1880, 5507 3 4500 1881, 9785 6^ 9750 1882, 12,553 7 10,500 2000 1883, „ 13,244 H 11,250 1000 1000 1884, 13,784 n 11,250 2000 1885, 13,023 n 11,250 1000 500 1886, 13,143 n 11,250 1000 500 1887, 12,436 n 11,250 1000 500 1888, 11,211 H 11,250 1889, „ 12,467 8 12,000 1000 1890, 14,476 8 12,000 1000 500 1891, 14,172 8 12,000 2000 500 1892, 16,970 8 12,000 2000 1000 2000 1893, „ 16,494 8 12,000 2000 500 2000 1894, 15,832 8 12,000 3000 1000 1895, 14,154 8 12,000 1000 1000 1896, 14,781 8 12,000 1000 1000 1897, 13,486 8 12,000 1000 2768 (Blnce) 500 £528,667 £427,000 £58,268 £23,000 £20,399 80-77 % 11-02 % 4-35% 3-86% Including bonus. PERIOD OF PUBLISHED ACCOUNTS. 65 Caledonian Bank Eeports. Abstract Observations. 1865. Charles Waterston, manager. More profitable character of business during first half-year (1864) ; premiums on securities realised. 1866. Four West Coast Branches opened. 1867. Branch at Burghead opened ; £1000 presented to manager. 1868. Dividend to be payable half-yearly in future. 1869. Increase of Guarantee Fund, restricted to 4 per cent, interest thereon. 1872. Profit on sale of old investments. 1873. Bonus of 10 per cent, on salaries. 1874. 10,000 new shares (£2 10s. called up) to be allotted 1st Jan., 1875, at £.3 15s., 2000 to be sold [never carried out]. 1875. £12,500 premium on 10,000 new shares placed to Reserve Fund. 1876. 50 per cent, having been written off House Property Account, special appropriation to be discontinued. 1877. Appropriation to bank's premises new account. 1878. Appropriation to bank's premises new account; Mr. Waterston's retirement. 1879. Dec, 1878, suspension of business; £75,892 13s. 2d. placed to Su.spense Account, including £25,000 from Reserve Fund; Aug., 1879, resumed business. 1880. Eagle Henderson Macmillan, manager (2nd Feb.). Six months' operations. 1881. Unprecedented severity of winter; depression of trade; adoption of limited liability. 1882. 3rd Apr. Registered as limited ; directors to be reduced from nine to seven. 1893. William MacGregor, accountant, proposed as director. ()6 SCOTTISH BANKING DURING THE City of Glasgow Bank. Net Profits. Application. Dividend. Reserved Funds. Bank of TlnlnnPA Tkat'P A-inount. Bank Mona ^malice XJtLLXSt Rate Per Cent. Amount. Added. With- drawn. Bldngs. Defalca- tions. 1859, June £35,259 3 £20,126 £15,133 1860, „ 41,115 4 26,835 10,000 1861. „ 43,406 5 33,543 10,000 1862. „ 45,218 5 .33,543 14,867 1863. „ 46,400 5 33,544 10,000 1864. „ 66,562 6 46,226 15,261 1865, „ 7 89,646 7 60,900 25,000 1 ' £5000 1866, „ 92,494 7 60,900 20,000 I 1867, „ 102,288 8 69,600 20,000 5000 1868, ,, 93,206 8 69,600 20,000 10,000 1869, „ 97,776 8 69,600 30,000 1 5000 1870, „ 92,752 9 78,300 10,000 5000 1871, „ 96,483 9 78,300 10,000 1 5000 1872, „ 101,760 10 87,000 10,000 5000 1873. „ 113,284 10 87,000 20,000 10,000 1874, „ 8 128,712 11 110,000 11,500 5000 1875, „ 2 126,019 11 110,000 15,000 5000 1876, „ 7 124,388 11 110,000 5000 1877, „ 6 127,011 12 120,000 10,000 1878, „ 5 125,094 12 120,000 £13,223 (Balnce) £8873 £1,788,874 £1,425,017 £75,000 £8873 £279,984 79-66 % 15-65 % 4-19 % 0-50% PERIOD OF PUBLISHED ACCOUNTS. 67 City of Glasgow Bank Reports. Abstract Observations. 1858. Robert Salmond, manager. £71,588 5s. 4d., due to Capital Account, carried to Contingent Fund to be reduced by yearly instal- ments of £20,000 out of profits. [Proposal found to be illegal and loss written off.] 1859. Improvement in position and prospects of bank ; recent stoppage ; reduction of capital by £74,541. " Witb regard to the future management of the bank, safety and economy are the two objects which the directors desire especially to keep in view." Number of branches withdrawn. 1862. Increasing prosperity ; extreme depression of trade, and low rates of interest ; re-establishment of Edinburgh Board ; Earl of Caithness elected governor, and Sir William Dunbar, deputy governor ; dividend free of income tax. 1863. Depression in rural and manufacturing districts ; rates of interest low ; 29th Nov., registered under Companies Act. 1864. Alexander Stronach, manager. Business highly satisfactory ; £99,1.31 new stock issued at £59,739 Gs. premium. 1865. Business highly prosperous, future prospects encouraging, etc. 1867. New Edinburgh office. 1869. General depression of trade ; low rates ; business satisfactory ; prospects encouraging ; policy of board to establish a strong Reserve Fund. 1870. Progress steady and satisfactory ; proposed increase of capital. 1871. Low rates ; progress perfectly satisfactory. 1874. £130,000 new stock issued; premium (seemingly) £143,500 to Reserve Fund. 1876. Robert Summers Stronach, manager. Alexander Stronach, retiring. Enlargement of H. 0. premises indispensable. 1877. Plans of H. O. extension. 1878. June. Defalcation at Bank of Mona, £8873 off year's profits. New premises progressing. 1878. 2nd Oct. Failed ; estimated losses, £6,640,983. 68 SCOTTISH BANKING DURING THE Individually the banks have had varied experience, and have manifested diversity of policy. The profits of the Bank of Scotland have varied considerably, from £123,776 in 1870 to £187,467 in 1884. The dividend, which has never exceeded the sum of the year's profits, has ranged from 9i per cent, to 14 per cent., and is now^ at 12 per cent. In all, the dividend has absorbed 91 per cent, of the total profits, 9 per cent, having been reserved. The Boyal Bank shows larger aggregate profits than any of the other banks ; its dividend rose from 7i per cent, to 10 per cent., and is now 8 per cent. ; it has divided 95:^ per cent, and reserved 4f per cent, of net profits. The British Linen Company's dividend has fluctuated very little. It has risen from 11 per cent, to 16 per cent., at which it now stands, and has never exceeded the year's profits. For the year to loth April last a bonus or extra divi- dend of 2 per cent, has been declared. The dividend has absorbed 88 per cent, of the profits, 12 per cent, having been reserved. The Commercial Bank's dividend (includ- ing bonuses) has varied from 10 per cent, to 16 per cent., at which it now stands ; 89 per cent, of profits have been divided, and 11 per cent, reserved. The net profits were only once exceeded by the dividend. The National Bank's dividend and bonus have fluctuated from 10 per cent, to 16 per cent., the present rate. The proprietors have taken 89^ per cent., and reserved 10| per cent., and have never exceeded the year's profits. The Union Bank's dividend has varied from 8 per cent, to 15 per cent., and now stands at 11 per cent., and has absorbed 84^ per cent, of the profits, 15| per cent, being reserved. The Clydesdale Bank dividend has varied from 10 per cent, to 14 per cent., and now stands at 10 per cent.; 89 per PEEIOD OF PUBLISHED ACCOUNTS. 69 cent, have been distributed, and 11 per cent, reserved. The Town and County Bank's dividend rose from 10 per cent, to 13f per cent., and is nov^ 12| per cent. ; 89 per cent, have been distributed, and 11 per cent, reserved. The North of Scotland Bank's dividend rose from 10 per cent, to 13f per cent., and is now about 6f per cent.; 84 per cent, have been distributed and 16 per cent, reserved. The Caledonian Bank's dividend rose from 10 per cent, to 14 per cent, previous to the trials of 1878-79, and has since gradually risen to 8 per cent. ; 80J per cent, of profits have been paid in dividend and 19| per cent, have been reserved. None of the provincial banks has ever paid in dividend more than the year's net profits. The following table gives fuller details, in connection with which it may be interesting to mention that the City of Glasgow Bank statements represent it to have divided 79|- per cent, and reserved 20i per cent. : — Appropbiation of Thirty-three Years' Profits. Name. To Dividend. To Reserve. To Buildings. To Deprecia- tion. Per Cent. Per Cent. Per Cent. Per Cent. Bank Royal - - - - British - - - - Commercial - - National - - - - Union . . . - Clydesdale - - - Town and County - North of Scotland Caledonian - - - m 95| 88| 88| 89^ 84| 89 88J 84 80| 45 H H 84 10 m n 13.? 11 1 3 0| 3| 3 i 4 It is a noticeable feature that a much smaller pro- portion of profits has been reserved during the later than during the earlier years of the period. The growing diffi- (0 SCOTTISH BANKING DURING THE culty in making profits, conjoined with a natural reluct- ance to reduce dividends when they were actually earned, has probably influenced this result ; but no doubt the large additions made to reserves from incidental income (such as premiums on new stock) have superinduced a feeling that the business profits might be somewhat re- lieved from the burden for a time. It does not appear, however, that the British Linen Company, the Commer- cial Bank, or the Union Bank should be included in this category. The Clydesdale and North of Scotland Banks have also made large transfers from business profits in recent years ; but, with the exception of handsome sums applied yearly to write down the cost of buildings, these were required to replace losses. In most cases the net profits for 1895 showed an im- provement over those for 1865, the exceptions being the Koyal, Union, and Caledonian Banks, but in only two or three was the increase of a substantial character. The British Linen Company and Commercial Bank increased their profits by 33 per cent, and 35 per cent, respectively, and the National Bank by 20 per cent. The Bank of Scotland and Town and County Bank followed with 13 per cent. The other banks either showed but trifling improvements or a falling off ; the most striking instance of the latter experience being the Union Bank, whose profits were actually £32,088, or 22 per cent., less. The average experience gave an improvement of nearly 10 per cent, over the ten banks. The average dividend, however, rose at a greater ratio, being more than 2 per cent, higher than in 1865. In other words, while formerly dividend absorbed 78J per cent, of the profits, the proprietors, thirty years later, were taking 90 per cent. In 1896, PERIOD OF PUBLISHED ACCOUNTS. 71 however, a decided change took place. The declared pro- fits showed a marked upward movement, which was most noticeable in the cases of the National, Commercial, and British Linen. It was accompanied by an increase of dividends by these banks, by which the general average has been raised to 11 4'5 per cent. This improvement can hardly be attributed to increased earnings. No doubt business was better, but not to an extent sufficient to raise the net receipts by 9f per cent, on the year's turn- over. It is pretty evident that the banks (or some of them) are showing their hands more freely. Among the reports issued during the current year is that of the Brit- ish Linen Company, which again breaks the record. In declaring net profits for the year amountmg to £232,350, it not only far exceeds all its own previous reports, but also those of all the other banks. The nearest ap- proach to that declaration was by the Royal Bank in 1866, with £223,742 of profits. This favourable experi- ence has provided a bonus of 2 per cent, to the proprie- tors, making the total dividend 18 per cent, for the year, the highest rate ever paid by any Scottish bank in modern times. In considering the relationship of branch extension to realisation of profit, a very diverse experience is seen. All the banks have extended their branch systems, but they have done so in varying degrees and with different results. The Bank of Scotland and the provincial banks, occupying throughout the period much the same posi- tions relatively to the other banks as regards number of branches, have not materially changed their relative places in regard to amount of profits, although the former has gone back slightly. The Jioyal Bank, whicl: has largely 72 SCOTTISH BANKING DURING THE increased its branch system, shows a decrease in profits ; while the British Linen Company and the Commercial Bank, which have also been active in branch extension, have improved their positions in regard to profits. On the other hand, the National, Union, and Clydesdale Banks have been less active in planting branches, and the first has increased profits, the second has decreased pro- fits, and the third shows but slight improvement. Thus, although branch extension is undertaken for the express purpose of maintaining and extending business, and is therefore vitally associated with profit experience, either the activity has been sometimes misplaced, or other in- fluences have been so powerful as to obliterate the traces of the results. But perhaps the question may be view^ed from another standpoint. If we examine into the amount of profit drawn, on an average, from each office open in 1865 and 1896, it is found that a very large falling off has occurred. In the former year the amount per office (including the Central and City Banks) was £1709, while now it is only £1267 ; a decfine which was almost steady, at about £18 per annum until last year's improvement in earnings was shown. As it is, the decrease averages £14 per annum. This experience has been general with the banks, but they have been affected in different degrees. It is not easy to draw any conclusive deductions from the various experiences ; but it would seem as if those banks whose branch systems have been oldest established were suffering least. Thus we find that the Commercial, National, and Union, which have been comparatively quiescent in the matter of branch extension during the period under re- view, are all under average in the falling off'. On the PERIOD OF PUBLISHED ACCOUNTS. 73 t4 S-W reH.' HOWH'-I""!^'-!"'*^ , , m-c o oo t- t- tOrt^-^COCOOOODCOTtl o CO C0C000-*CDO'-H»O;0iO 1 1 CM tH i-l tH iH iH i-H >-l tH Cfl +- ^ (MCMCO-^OIWCCIOO-* 1-1 C00D05C0»0OC0-«*'CCCM CD 1 CO(MtO(M-*000»0»CiO 1 1 1-1 rH tH 1-1 iH 1-1 1-1 1— 1 =rt =rt OOIOCDtUCDOOOOCCM CM 00000(M^O>0(MO»0 1 1 CD i t-OTjHCOOOi-IC<10t->0 1 1 CO ,-( 1-1 iH iH iH tH 1-1 s Qi srt ■* Ol (M t- ■* CO CM ^ lO 1-1 CM CO COt-CJiCOi-llOCOOCDCO ICO CD »4 GOOiCOt-C2C00>tO"0'*< o lO (MCOOOt-CO-*COOOCOCMC75 t- s tMOlOli-liHi-li-l i-li-li-l 1-1 crt =rt >iT3 -^ fl . , , , , ■ . 1 . . a cd ' ' ' , , ,|| , . , s tffl 5ooo > 74 SCOTTISH 1?ANK1N(; DURING THE other hand thi- thn>e old hanks, which in 1865 were head and shoulders ahove the others in amount of profit per oftico, and liave since been active in branch extension, show a faUing off twice as great. The two Aberdeen banks, whose systems were early established, also show under average falling off. But this theory will hardly meet all the difficulties of the question. To investigate the influences affecting the profit experi- ences of the banks would be a most interesting and vitally instructive work, but it would require more detailed in- formation and intimate knowledge of the affairs of the various banks than is obtainable from pubhshed reports. It does, indeed, appear that conservatism in division of profit is associated with prosperity ; but, on the other hand, the Union, North of Scotland, and Caledonian Banks, which all stand high in this respect, have all had adverse experiences; while the British Linen, Commercial, and Town and County Banks, which occupy to some extent a medium position, have been comparatively prosperous. Perhaps it depends to a considerable extent on the earli- ness, continuity, and thoroughness of the practice of the pohcy. But this will not wholly solve the problem. The conduct of all business is associated with questions of personnel, mental, social, and even physical conditions, and that host of undefinable minor qualities and actions which influence all the relationships of hfe. As banks exist not only for the benefit of the com- munity, but also for the profit of the adventurers (as they used to be most logically called), it is fitting at this point of our investigation to consider how far the general poficy of each bank has been to the advantage of the proprietors. Of course the actual day-to-day management of a bank PERIOD OF PUBLISHED ACCOUNTS. 75 enters largely into the results of its experience ; but it is obviously impossible to take such considerations into account in this connection. It must be assumed that each of the banks has been conducted to the best ad- vantage of its constituents, both private and public, that its special circumstances would permit of. It must also be borne in mind that the results do not necessarily follow from the policy pursued during the years embraced in our survey, but may, to a greater or less extent, depend on the policy of former years. In pursuing this investigation it will not be sufficient to look solely at the rate of dividend now payable, but rather at the return obtainable on the aggregate amount of the proprietors' funds. In this view the Commercial and National Banks have, among the large banks, held leading places all through the thirty years ; but whereas the National had shghtly the lead up till 1883, the Commercial has since distanced it, and now stands first among the banks for the return made to the proprietors on the private liabilities of the bank. The two Aberdeen banks have also done very well in this respect, although the North of Scotland has recently been handicapped by its vigorous efforts to replace its losses in the fishing trade. The three old banks have not improved their positions — the Bank of Scotland, which was first in 1865 with 11 per cent., being now fourth with 7 per cent., and the others having fallen off in lesser degrees. Of course, conservatism in the division of profit, and efforts to strengthen the guarantees to the public, tend to lessen the return to proprietors. But while a general lessening of the return is shown, it appears that the more con- servative members of the family are able to give a better return to proprietors than those that have reserved a 7«) SCOTTISH BANKING DURING THE smaller portion of their profits. That is to say, the British Linen, Town and County, Bank of Scotland, National, and Commercial Banks, which have done most to strengthen their private funds, are also those which give the best return to the proprietors, although they come in somewhat different order in the latter aspect. Of course^ profits reserved are not lost to the shareholders, but, being employed in the business, earn profit which swells the general return. Dividend to Proprietors' Funds. Bank. Bank . - . . Royal - - - - British - - - Commercial - - National - - - Union ... - Clydesdale - - Town and County North of Scotland Caledonian - - Central - - - City 1865. Per Cent. 11 6 7-6 1872. Per Cent. 8-6 6-7 9-1 9-6 9-7 8-9 8-8 7-8 7-9 8-4 S-1 9-4 1883. Per Cent. 7-9 6-9 7-6 8-6 8-7 7-9 7-1 7-9 7-7 5-3 7-5 1896. Per Cent. 7-0 5-6 6-9 8-3 7-8 5-9 6-2 7-6 5-3 5-2 Better or Worse. Per Cent. 6-6 - 4-0 - 0-4 - 1-1 + 0-3 - 0-2 - 0-1 - 0-8 + 0-6 - 1-7 + 0-2 1-0 The question of the profitableness of the banking business may also be examined from the point of view of the return obtained from the use of borrowed funds. For the purposes of this examination we allow 4 per cent, in 1865 and 8 per cent, in 1895 as proportion of profits ap- plicable to the proprietors' funds. The remainder of the profits may be considered as derivable from the pubhc liabilities. On this basis the average return to the ten banks in 1865 was I'l per cent., and among the banks individually the rates conformed with reasonable closeness to the general average. The north country banks showed PERIOD OF PUBLISHED ACCOUNTS. 77 higher rates than most of the large banks. Among the latter the British Linen had the highest rate, 1"23 per cent., and the Eoyal Bank the lowest, 090 per cent. Turning to 1895, we find that the general average fell, notwithstanding the lower rate we have allowed on pro- prietors' funds, to 0'66 per cent. The banks conformed in the same degree to the general average, but changed places to some extent. The British Linen, however, still occupies the chief place, closely followed by the Com- mercial. The Town and County, Clydesdale, and North of Scotland Banks are also over the average, while the National is but httle under it. One of the striking fea- tures is the apparent low profit earning rates of the Bank of Scotland, Koyal Bank, and Union Bank, which bring up the rear with little more than h per cent. The increased profits declared last year bring up the general average to 0"74 per cent. As a companion table to that appended to our last chapter, we give the following view of the relative positions of the banks as regards progress on the combined bases of improvement in (1) proprietors' funds, (2) deposits, (3) advances, (4) banking reserves, (5) amount written off property, (6) new branches, and (7) profit experience : — Relative Positions as Regards Pbogress. Name. 1865-72. 1872-83. 1883-95. 1895-96. Better + Worse - Bank - - - - 5 1 3 3 + 2 Royal - - - - British - - - 7 10 7 5 10 2 10 2 - 3 + 8 Commercial - - 4 8 4 4 National - - - 2 4 7 6 - 4 Union - - - 9 9 9 9 Clydesdale - - Town & County North of Scot. - 1 6 8 3 G 2 G 1 5 5 1 7 - 4 + 5 + 1 Caledonian - - 3 10 8 8 - 5 78 SCOTTISH BANKING DURING THE From this it appears that the British Linen Company, the two Aberdeen banks, and the Bank of Scotland have improved their relative positions ; the Commercial and Union Banks have maintained their places in the race ; while the others have advanced at less rapid rates. Profits on Public Liabilities. Bank. Bank - . - - Royal - - - - British - - - - Commercial - - National - - - Union - - - - Clydesdale - - Town and County North of Scotland Caledonian - - 1865. Per Ceot. 1-17 0-90 1-23 0-95 0-94 1-10 1-20 1-61 1-21 *2-07 1-10 1895. Per Cent. 0-55 0-54 0-87 0-81 0-64 0-54 0-68 0-80 0-66 0-60 0-66 Per Cent. 0-57 0-56 0-96 0-90 0-72 0-72 0-75 0-89 0-73 0-66 0-74 Fall. Per Cent. 0-60 0-34 0-27 0-05 0-22 0-38 0-45 0-72 0-48 1-41 0-36 There remains to be noticed the loss experience of the banks. But at the outset we are met with this difficulty, that it is comparatively rarely that any specification of loss is made, the usual practice being to declare the net profits after making " ample provision for all bad and doubtful debts ". The only gauge by which to estimate the ordinary annual loss is that already referred to, wherein the losses of the Koyal Bank from 1865 to 1874 inclusive are shown to have averaged Is. l^d. per cent. per annum. That that experience was an unusually favourable one is mdicated by the facts that it was re- ceived with surprise at the time, and that no other bank has offered to cap it. But as it would be merely guessing to attempt to amend it, we must accept it as the standard * Profits exceptional. 1-3 per cent, on basis of 1866 and 1867. PERIOD OF PUBLISHED ACCOUNTS. 79 for the general experience. On this basis, then, the or- dinary losses during the thirty years would be about £1,100,000. This, as we have pointed out, must be deemed a moderate estimate. But there falls to be added to it the losses specified in the annual reports, amounting in all to nearly £800,000. And lastly, we must include the City of Glasgow Bank's losses to the ex- tent of £6,640,983. We thus ascertain a total loss experi- ence of £8,500,000 sterling in thirty years. This gives a yearly average of loss to the extent of about £284,500. It may be objected that to include the City Bank's losses is unfair, as these were exceptional. But we are dealing with the actual experience of banking in Scotland, and must therefore include all losses by bad debts, whether excep- tionally large or not. Besides, it is questionable if we are entitled to assume that the City Bank disaster was excep- tional. The immediately preceding generation witnessed a similar exceptional disaster proportionate to the develop- ment of business at that time. The generation before that again suffered from several minor failures, and its imme- diate predecessor was still more unfortunate. The gener- ation preceding that sustained the Ayr Bank collapse and a multiplicity of smaller failures. As this takes us back to the period of the commencement of the developed banking system, it is apparent that it would be unsafe to treat any loss as outside the normal experience. But, excluding this special element, the average annual loss would appear to be about £68,000. It is not, however, the actual amount of loss that is of so much consequence as the extent of the provision made for it in anticipation. And in this view it is pleasing to find that five of the banks — the Bank of Scotland, the ]>ritish Linen, Com- so SCOTTISH BANKING DURING THE mercial, National, and Town and County — have not required during the whole thirty years to trouble the proprietors with any specific announcement as to provi- sion for losses, while all the others satisfactorily met the necessities as they occurred. It is noticeable, however, that most of those which are in the former category have been conservative in the division of profits ; while those which have had to confess to special losses have all paid higher rates of dividend than they pay now. If these latter had only estimated the contingencies of the future at a somewhat higher rate, we might have had a clean slate in the matter of recorded losses. In concluding our review of Scottish banking during the last three decades, the question naturally arises, "What will the future be? " To answer it is, of course, impossible. But as the best guide to the future is a study of the past, we can deduce from the experiences which we have been examining and the conditions which we find in existence what the general tendency of the course of events is likely to be. In the first place, it would appear that the rate of interest is on the dowm grade. There will doubtless be improvement from time to time, as there has been recently, but there seems no reason to hope that the next thirty years will give anything like as good an average as the last thirty. Of course some great disturbing element, involving great consumption of capital, such as a European war, might alter the condition of affairs, at least for a time ; but, barring unforeseen con- tingencies, the normal profit capabilities of banking may be expected to dechne. State interference is also an ad- verse factor to be included in such considerations. More- over, in our advancing state of civilisation, financial and PERIOD OF PUBLISHED ACCOUNTS. 81 mercantile developments tend to produce conditions of greater danger, so that provision for losses behoves to be on a larger scale than formerly, to the further restriction of profits. Of course adjustments of rates may be made from time to time; but the lov7er deposit rates fall the greater is the danger of killing the goose that lays the golden eggs. The field of business may, as we have hinted, be widened; but every new enterprise is attended by dangers peculiar to itself. Besides, the force of cir- cumstances is sufficiently abrogating the old traditions without such additional revolutionary change. Well is it with those banks which have made the affluence of the past minister to the necessities of the future ! If the anti- cipation of evil should prove true, they will rise lightly to the waves of adversity ; should the expectation be agree- ably disappointed, their voyage will be but the more prosperous. .S-J SCOTTISH BANKING DURING THE CHAPTEE V. PROVISION FOR LOSSES.* One of the most important phrases constantly occurring in bank reports is that which usually accompanies the statement of the amount of net profit made during the period under review. The City of Glasgow Bank, occupy- ing as it did an exceptional position among banks, latterly dispensed with the practice ; but it is an almost invariable rule to declare the profits as ascertained "after provision for all bad and doubtful debts ". Where this assurance is not given attention should at once be called to the omission. There are great differences, however, in the practice of y banks in making such provision. While it is a recognised custom to make an estimate of prospective losses, and to deduct from the profits the amount so required, some banks probably err in minimising their loss. There is a great temptation to this in the case of young banks, even in cases where the general management may be otherwise good ; and, of course, where banks have got into a weak condition, the temptation is still stronger. In the case of old-estabhshed and wealthy banks, a contrary course is usually followed. It is felt as a relief to cut out all doubtful business when ascertaining the position of the estabhshment. In this way it often comes about that excessive provision for losses is made. Wliile this may * North British Economist, Nov., 1894. PERIOD OF PUBLISHED ACCOUNTS. 83 seem to infringe the rights of the proprietors, it is truly the wisest course that can be followed. The position of a bank should always be actually better than it is repre- sented to be by published statements. An invisible re- serve is thus created, which in times of pressure forms an admirable buffer between the bank and adverse experi- ence. The reserve fund is often called a provision for losses. It is so undoubtedly. Before the capital can be encroached on, it must disappear. But it should very rarel}'' occur that any deduction from the reserve fund requires to be made. When such a transference is made, a bank's credit is undoubtedly injured in somewhat the same way as if its capital were reduced. In point of fact, the accumulation of a reserve fund is in one sense an increase of capital. If dividends are not paid on it nominally, it is at least earning profit which permits a higher dividend to be paid on what is technically called the capital. If, then, a reduction of the reserve fund is injurious to the credit of a bank, it is right that special care should be taken to avoid such a contingency. But bad debts are inseparable from the business of banking. A bank that refused to run any risk would not get current business, and would become a mere investment company. Consequently they should be regarded as a necessary part of the business, and treated accordingly in the general pohcy of management. Un- fortunately, however, bad debts in banking experience are like comets in the solar system. While they may be ex- pected with absolute certainty, the time and manner of their arrival, their number and their magnitude, are often in- volved in impenetrable uncertainty. Considerable periods may elapse without any material loss emerging. At other si SCOTTISH BANKING DURING THE times losses occur with irksome repetition. There are times for small losses, and times for big ones. Careful management will, of course, minimise the amount of loss experienced ; but it often happens that the strongest banks suffer very severely. The case of the London and Westminster Bank is a case in point. AVith more than £30,000,000 of assets its directors have sometimes been able to say that no loss of any consequence had been made during half a year's business. And yet to those who re- member the time of the arch-swindler Collie, such state- ments recall a startling experience, which has long since been recovered from, and which even at the time was borne with ease owing to the ample provision made pre- viously for unusual contingencies, but which was accom- panied with very serious anxiety and grievous loss. But while it is right year by year to lay aside privately from profits a sum sufficient to cover all foreseen possible losses, there is another class of losses which should also be provided for in the same way. These are the unforeseen losses — those which are not expected, but inevitably come. It is, for the most part, only in good years that this can be done. If not done when large profits are being earned, and when losses are agreeably conspicuous by their absence, it becomes necessary to do it when profits are small and losses are numerous. In other words, bank profits should be esti- mated not by the year, but by tens of years. The profits, in excess of the average, gained in good years, will thus make up for the deficient profits of bad years. Such a pohcy as this has a splendid effect on the credit of a bank. When it is seen to ride out a financial storm without losing a spar, it is regarded with almost boundless confidence. It is, moreover, too often forgotten by shareholders that PERIOD OF PUBLISHED ACCOUNTS. 85 profits reserved are not lost to them. The money still re- mains their property, is probably in safer keeping than in their own, is earning profit for them, and is ensuring them from future danger. These remarks are applicable to other businesses than banking. Had such a policy as we are here advocating been followed out by property and other investment com- panies, their recent experiences would in all likelihood have been avoided. To the public it would all along have seemed as though their profits were on a moderate scale ; conse- quently, there would have been less competition and less speculative business. When the bad times came they would have been able to meet their losses without such apparent serious consequences as have been seen. It is a safe rule for all companies trading on credit to dispense entirely with sanguineness, to estimate profits as less than they appear to be, and to treat losses as larger than they are likely to prove. Another point to be noticed is the effect of the reduction of dividend owing to provision for losses. It is often said that this hurts a bank's credit. No doubt, as we have seen, it is best to be provided beforehand with minor reserves. But, should the loss exceed the amount of the provision, a reduction of dividend to meet the deficiency is only regarded as prudence. The market price of the stock falls, but the credit of the institution is uninjured. Only in cases where doubt exists in the public mind as to the fulness of the provision, is any damage done to credit. But this aspect of the case shows all the more conclusively the advisableness of being forearmed against the necessity for declaring losses at all. 86 SCOTTISH BANKING DURING THE CHAPTER VI. BANK NOTE ISSUES.* In all discussions on banking the question of note issues takes a leading place. This is the natural result of as- sociation of ideas in the public mind. Every one has practical knowledge of bank notes, while comparatively few persons have accurate acquaintance with the nature of banking operations, or of the principles on which these are conducted. This state of matters was strikingly evidenced by the character of the recent discussion re- garding the Scotch banks in the correspondence column of the Scotsman, where many of the writers indulged in wild statements and in crude suggestions at which practical bankers could only smile. But while it is natu- ral that the subject of bank notes should bulk largely in the public eye, seeing they form a very great proportion of the currency of the United Kingdom, and in Scotland and Ireland take the place of gold almost entirely, it is yet somewhat extraordinary that economists and financiers should follow suit to so great an extent as they do. In connection with currency investigations the subject as- sumes a vital interest ; but in regard to banking it is quite of secondary importance. The bank note circulation of the United Kingdom is about ^£43, 500,000 sterhng, of which about i;35, 500,000 is backed by tangible security, * Scottish Banking and Insurance Magazine, 1st Nov., 1880. PERIOD OF PUBLISHED ACCOUNTS. 87 leaving about £8,000,000 based purely on credit. Now the daily average of cheques, bills, etc., passed through the London Clearing House alone is fully £16,000,000.* That is to say that there is continually in circulation through the one channel of the London Bankers' Clearing House twice as much unsecured paper drawn by the customers of the various banks as there is of bank notes in circula- tion throughout the kingdom above the required provision of securities and bullion. Again, if we compare the deposit and note liabilities of the banks, a still stronger case is made out. Confining ourselves to Scotland (as English and Irish statistics are defective), it will be found that last yearthe banks in Scotland held upwards of £73,000,000 of deposited money as contrasted with a liability of about £5,500,000 on account of notes in the hands of the public.f The acceptances of the banks, which are always regarded as the highest class of paper, and circulate freely without question as to special security, sometimes exceed the amount of the note issues. It is thus apparent that the note circulation is trifling in amount in comparison with the other public liabilities of the banks, and with the currency liabilities of their customers. In its essential characteristics a bank note does not differ materially from other transferable demand docu- ments, as the fundamental function of each is the instan- taneous transference of a right to a specific sum of standard coin. But from force of habit, formed through experience of convenience, bank notes have for long been regarded as money, although they are merely a substitute for it. In consequence of the extent to which this popular conception * Now nearly £21,000,000. t Now £95,750,000 and £7,250,000 rcspoctivoly. 88 SCOTTISH BANKING DURING THE has attained, the Legislature has wisely taken special pre- cautions for the regulation of bank issues. We do not say that their provisions have alv^^ays been judicious, but there was a manifest reason for their assuming particular control over this species of currency. Hitherto, however, Parlia- ment has tacitly recognised the right of issue, although it has restricted the exercise of that right in such ways as it deemed advisable in the public interest. The view that the right to issue and make profit by paper currency is one of the peculiar prerogatives of the State, has for long found many advocates, but it has never been adopted by the British Legislature. The foundation of this opinion is that, as notes are substitutes generally accepted for the coin of the realm, and as the control of metallic currency is the prerogative of the State, the paper currency should also be in the hands of the State. It has, however, been repeatedly shown by economists that there is a distinct fallacy in this argument. The metallic currency is not and never has been, strictly speaking, in the hands of Government. Any one who has command of gold bullion can issue it in the form of coin ; but, in order to secure the lieges against imposition, it is required that his bullion should receive the imprimatur of the Crown. Similarly, as bank notes have acquired a public recognition as cur- rency. Parliament has assumed a certain amount of control on their issue. Some states have assumed the right of issuing paper currency, but in every case it has proved irijurious to the public interest, for the tendency of govern- ment issues to become inconvertible is, in times of finan- cTaT pressure, too strong to be resisted, and inconvertibility destroys the essential characteristic of a proper paper cur- rency as an efficient and economical substitute for coin. PERIOD OF PUBLISHED ACCOUNTS. 89 It is a popular belief that the note issues are a great source of direct profit to the banks. Thus, when it is stated that the Bank of Scotland has an average circulation of upwards of £800,000,* it is often supposed that that is as good to the bank as money deposited without interest. So far from this being actually the case, it is somewhat doubtful if there is any profit from the transaction. It is only on the sum of £343,418 that the bank can make any profit at all. For the remaining portion of its issue it must keep a corresponding amount of bullion. That repre- sents a complete loss of interest. From the income deriv- able from the authorised issue there falls to be deducted the expense of manufacturing the entire body of notes — a very heavy item — Government duty, bankers' licences, charges for conveyance of bullion, exchange expenses, and a multiplicity of minor outlays. From this it will readily be seen that there is small room for direct profit to any of the banks, and none whatever to those whose authorised issues are small in proportion to their actual circulation. The direct profit on bank note issues goes principally to Government in the shape of saving in wear and tear of the gold coin, and in special taxation. It is not to be supposed, however, that the banks derive little or no advantage from the right of issue. We have just shown that the direct advantages are small ; but if we turn to the indirect advantages they will be found to be considerable. We are here speaking of the Scotch and Irish banks — tVie English country note issues have been quite paralysed. The one great advantage to be derived from the power of issue appertains to the notes as still unissued, not to those in the hands of the public. From * Now £1,000,000. 90 SCOTTISH BANKING DURING THE those in active circulation the banks get but little if any profit ; from those ready to be issued they derive a great advantage. Were it not for the power to issue notes, and the readiness with which the pubhc receive them, the banks could never have afforded to open a third of the branches which have been established. The reason for this is a very simple one. Without the right of issue a bank must, at every one of its offices, hold the whole of its balance of cash in the shape of coin, or of notes of other banks, which, as far as it is concerned, are as unprofitable as coin. Such balances entail a complete loss of interest which can only be borne where the amount of business is of considerable extent. There are probably not above one (at most two) hundred localities in Scotland that would satisfy such conditions. When, however, a bank can hold its till-money in the shape of notes, it is enabled to extend its operations into districts which otherwise would be quite inaccessible. It is for this reason, and for this almost entirely, that the Scotch banks have been able to develop their branch systems to an extent that has made Scotland notable as having the greatest supply of bank offices in proportion to population of all the countries in the world. The opponents of bank issues must lay their account to witnessing a great contraction in the number of bank offices, or alternatively a great increase in provincial bank charges. It is thus apparent that the public are even more interested in preserving the status quo than the banks themselves. On former occasions the public of Scotland have, with shrewd sense, preserved this powerful agency for the maintenance of their commercial prosperity, against the views of Government. These views are, to all appearance. PEEIOD OF PUBLISHED ACCOUNTS. 91 still held by the majority of British statesmen, and always tend to assert themselves ; for in England, which is the dominant unit of the Union, banking has been stereotyped in a much less developed form than in Scotland, through pernicious legislation. But in Scotland, where banking has matured into a natural and thoroughly economic form, it behoves the pubhc to be on their guard against encroach- ments on those elements of banking which have been efficient aids in establishing its prosperity. The banks will always be able to look after their own interests, for they will never long continue an unprofitable course of business; but the public may be entrapped by popular agitation into the thraldom which has been the aim of statesmen since the days of Sir Kobert Peel. 92 SCOTTISH BANKING DURING THE CHAPTEK VII. THE ULTIMATE GOLD RESERVE. One of the few unsolved problems in British banking is the provision and maintenance of a bullion reserve suited to the extended and ever-extending character of the bank- ing system, the commercial and mercantile business, and the national and imperial interests. British credit is, as has often been pointed out, based on but a slender founda- tion of hard cash. There is not in this an accusation of inflation. From time to time, no doubt, financial or mer- cantile inflation does occur, with its sequel of panic and crisis. But, with these occasional excrescences, British credit is based on a stronger foundation of actual exchange- able wealth than any other nation, ancient or modern, could show. Nevertheless, the position of private and national credit is one of great danger, which only the extreme robustness of our national constitution enables us to ignore. But, as the strongest man is but a child in the whirlwind, so the robustest national credit might snap in a conjunction of unfavourable international contingencies. Our temerity in the matter of bullion reserves will best be comprehended by a comparison of the British position with that of the other great powers. While our reserve of bullion, largely increased within recent years, repre- sented by the coined and uncoined gold and (to a small PERIOD OF PUBLISHED ACCOUNTS. 93 extent) silver in the Bank of England, is round about £35,000,000, the stock of gold in the Bank of France is equivalent to about £80,000,000, besides which they hold silver to the value (nominal) of £50,000,000. The Im- perial Bank of Germany and the Austro-Hungarian Bank together hold coin and bullion to the value of £85,000,000 ; while the Bank of Russia has a stock amounting to £96,500,000, of which less than £4,000,000 consists of silver. It may be argued that the note issues of these banks are much larger than the circulation of the Bank of England. But, on the other hand, that fact is of compara- tively little importance, as convertibility is not an essential doctrine in these countries as it is with us, while in the case of Russia there is an actual condition of inconverti- bility. But not only are those banks so much stronger than our national establishment, they are not so subject to foreign drains as we are. Owing to the autocratic tone of continental (even republican) governments they are enabled to retain their stocks when they deem it un- advisable to part with any. Even in Germany, where there are several banks of issue, the moral influence of the central establishment, when it is found necessary to exercise it, is powerful enough to restrain all the local banks from reducing their metallic reserves. This is in itself equivalent to an additional reserve of coin ; as it is no doubt intended to be. Since the passing of the Bank Act of 1844 * there has been an ever-growing feeling of dissatisfaction, or at least uneasiness, with regard to the monetary system which was then instituted. From time to time the discussion of * This and two following paragraphs from Edinburgh Cottrant, 9th Jan, 1875. 94 SCOTTISH BANKING DURING THE its merits and demerits becomes so animated, and the dis- turbance of the money market under its provisions has booouie so frequent, that new legislation on the subject is called for. But, unfortunately, as usually happens in pub- lic discussions, the would-be reformers are by no means agreed as to what course it would be well to follow. A proposal was made in the columns of the Economist, by an eminent financier, for the formation, by the clearing bankers, of a cash reserve under their own custody, by the withdrawal of their balances from the Bank of Eng- land, to the extent of £8,000,000. This plan met with much adverse criticism, which was doubtless quite de- served, as it is evident that, whatever advantage it might bring to the clearing bankers, it would not increase the banking reserve of the nation, and the scheme thus failed to mitigate the situation. But other suggested schemes, if more extensive, and seemingly complete, have not commended themselves as calculated to be any more efficacious, while they would probably entail many evil consequences ; and some are, indeed, founded on incorrect financial theories, which is not the case with the former. The opinions of a section of reformers, who may be called the Radicals of the financial world, were embodied, with considerable force and ability, in a pamphlet which was published some time ago, by an English banker. After justly pointing out the error of the comparatively small amount of attention given by the general pubhc to monetary questions, the author goes on to lament that the Bank of England should have, to so great an extent, lost the control of the money market, while its bulHon reserve is so small that the withdrawal of even £1,000,000 tends to raise the discount rate ; and that the cash balances of PERIOD OF PUBLISHED ACCOUNTS. 95 the other banks are so disproportioned to their deposit habilities. He suggests as a remedy that the Act of 1844 should be repealed, that all bank note issues should be abolished, and that the Government should issue a national paper currency. These proposals are not new ; indeed they have been made and refuted again and again ; but with an extraordinary persistency they crop up whenever there is a discussion upon currency. With all its faults, the Act of 1844 is not to be so lightly disposed of ; and although the centralisation of note issues was a leading object with its framers, more recent discussion has shown the unadvisableness of such a proceeding ; and very little study is required to discover the fallacy of arguments in favour of Government taking the note issues into its own hands. The issuing of notes by banks is much more economi- cal and convenient for the nation than a state issue would be ; and, although in some cases the latter ways have been quite successful, in others the consequences have been very disastrous. Besides, while sometimes necessary, it is a dangerous power to place in the hands of a government. The conjunction, on the other hand, of the issue of notes with general banking business gives a reciprocal advantage to each department such as cannot be obtained when they are dissociated. What would our Scottish banks have been without their note issues? What, indeed, would Scotland have been without them ? It was the notes that cultivated the land, caught the fish on the coasts, and developed the trade and commerce of the country ; thus producing the deposits which have enabled the banks to bring their advantages within the reach of every one. Take away their liberty to issue notes, and the Scottish 96 SCOTTISH BANKING DURING THE banks must withdraw many of their branches, increase tht'ir char£];es, ami perhaps even reduce their deposit interest rates. An extension of freedom to issue notes, under proper conditions to secure convertibiHty, would be a much more advantafreous arrangement for the nation, than a curtailment of the riijht. The only practical contribution from Scotland towards the discussion of this subject was contained in an address by Mr. Charles Gairdner, of the Union Bank of Scotland, to the London Institute of Bankers, in February, 1886.* Basing his theories on the experience of banking in Scot- land, he endeavoured to show how the scarcity of gold, which is complained of by some economists, might be mitigated by greater economy in the use of that metal for currency purposes. It is well known that the currency of Scotland differs from that of England in so far as the banks of the former country are permitted to issue notes of the value of £1, while no notes of a lower denomination than £5 are permitted south of the Tweed. The consequence of this is, that in Scotland sovereigns are comparatively little used ; while in England they form a very large por- tion of the currency. Now Mr. Gairdner sought to show that by the adoption of the Scottish system of £1 notes, the gold supply of the nation would be practically increased by the amount of sovereigns liberated from their present currency function. With sufficient provision for the con- vertibility of the notes, a paper currency is greatly more economical than a metallic currency. The wear and tear of a soft metal, such as gold, is in itself a serious item in the consumption, not only on account of the amount, but • This and the four following paragraphs were published in 1886. PEEIOD OF PUBLISHED ACCOUNTS. 97 because, unlike the other items of consumption, the metal thus lost is lost for ever. But it is the still greater economy which might be secured by permitting the gold displaced by paper to be used for other purposes, such as international exchanges, that Mr. Gairdner chiefly points to. In this connection he estimates that i^50, 000,000 might be liberated. This is probably not an over-estimate, when the total gold currency is taken at £120,000,000. But it must be remembered that under the present system this amount would simply be transferred to the vaults of the Bank of England, and not added to the available gold supply. For as the ac- cepted theory is, that paper currency must be based on gold, for every £1 note which left the bank one sovereign would have to go in. Mr. Gairdner seems to hint, how- ever, at an alteration of the law, whereby one half of the increased note issues might be founded on securities. This presupposes a change in legislative principles which is probably not practicable at present. But even if £2.5,000,000 were thus made available, does Mr. Gairdner's theory hold good that our trade would be benefited as by the creation of a hundred new capitalists each with £250,000 ? If the scarcity of gold actually exists, it exists all over the world ; and as gold finds its level among civil- ised nations as surely as water does in nature, would not the increased supply be distributed among at least the gold-currency nations ? If so, Britain would only retain that portion applicable to its own relative position in the world. But is it true that there is a scarcity of gold ? It is undoubted that there is a diminished yearly supply ; * but * This was written before the great South African influx. *18 SCOTTISH BANKING DURING THE may there not also be a diminished yearly demand? Economies in the use of gold have been continually in- creasing, although the special economy advocated by Mr. Gairdner has not received the attention it deserves. The system of cheques, bankers' railway and other clearings and exchanges are being more and more extended and perfected. With lower prices and decreased expenditure on the necessaries and comforts, as well as on the luxuries of life consequent on the diminution of incomes, the consump- tion of gold must be less, while a decreasing volume of trade values year by year over the world will make smaller demands on the gold supply. This, of course, is hypo- thesis ; but what say the Bank of England returns ? It has hitherto been held that a scarcity of gold involved a drain on the bank, which in its turn occasioned a high discount rate. But instead of money being dearer, it has for years been abnormally cheap ; and the supposititious seekers after gold ignore the heaps in the bank which are obtainable on demand. This seems inconsistent with an unsatisfied desire for gold by the outside world. Without absolutely denying that there is a scarcity of currency — the testimony of so many able economists in favour of the theory is not to be lightly put aside — there yet seem to be many reasons for doubting its existence, or at least for thinking that its effects are not so direct as some theorists would have us believe.* Of course an inadequate supply of gold, other things being the same, imphes a fall in prices ; for if there is less of it, more commodities must be given in exchange for it. But other circumstances may counteract the deficit. When Mr. * The scarcity theory was much more strongly held in 1886 than it is DOW. PERIOD OF PUBLISHED ACCOUNTS. 99 Gairdner speaks of there being perhaps both a fall in the prices of commodities, and an appreciation of gold, we are further involved in a speculation to which there appear no bounds. It is sufficiently difficult to compare a variety of fluctuating prices (commodities), on the one hand, with another fluctuating price (gold) taken as a standard, on the other, and to determine which has altered its position. But when we are asked to consider both sides of the com- parison as fluctuating, we are entitled to demand a new standard. AVhen silver was practically stationary in value, it may have been a fairly trustworthy measure ; but what- ever may have been its utility in that respect in former times, it is, for such a purpose, worse than useless now ; and no substitute is offered to us. Again, Mr. Gairdner seems to imply, although he does not say so, that a low range of prices is an evil ; and this is practically involved in the position of all those econo- mists who are deploring the decrease in the gold supply. The trade theory is that high prices and prosperity, and low prices and depression, go hand in hand. And it is, so far, quite true. AVhen prices fall to such a point that there is not sufficient profit for the producers and distri- buters of goods, the condition of trade is to be deplored. But, on the other hand, when prices rise so that con- sumers are straitened to supply the superfluities of pro- ducers, there is cause both of regret and anxiety. Now it must not be forgotten that, after all, the greatest good of the greatest number is secured by moderate prices. This is really the principle of free trade, which enables con- sumers to buy the produce of all the world at the cheapest rates. Even when trade is bad, and employment scarce, low prices mitigate the suffering. We hav(! lately [1H86] 100 SCOTTISH BANKING DURING THE lu>:inl inucli (tf the prospects of the Mysore and other Indian ^n>ld mines ; Init, if expectations are realised, and they pour their riches on the world, will the chief result be a rise in prices ? Or will dear commodities be accom- panied by expanding trade and plenty of employment at hi"h wages? Or are the fluctuations in the relative values of gold and commodities simply oscillations which preserve the equilibrium, without indicating any direct influence of the supplies of gold on the condition of trade ? The great error of those who have propounded schemes for the strengthening of the bullion reserve has been the attempt to devise a system which will not involve loss of interest. Ultimately, however, the banks generally recog- nised the necessity for practical action, and agreed to keep larger balances than formerly at their credit with the Bank of England, to enable that institution to maintain its reserve at higher points. Towards this movement, the state of the money market was, no doubt, a contributing element ; as the large accumulations of floating balances made the sacrifice less than it would have been formerly. Nay, there may have been little if any sacrifice, for by lessening the competition of loanable capital they tended to improve discount rates. It is here, however, that the weakness of the system appears. The plan is good, and just, so far as it goes. The result is not only satisfactory, but the mutual action of the banks in sharing the responsibility of maintaining the reserve, places the burden more equitably than formerly. But the weakness exists in the temptation under which the banks he to reduce their balances when the demand for accommodation increases during periods of trade or speculative activity. Such periods are usually followed by times of more or less acute crisis, when the PERIOD OF PUBLISHED ACCOUNTS. 101 strength of the reserve is an all-important matter. Besides, the banks might be compelled to draw on their balances in self -protection. But even if that should not occur, the gold might be drained away despite the efforts of all com- bined. But even if the banks, or most of them, prove conscientious enough to resist the temptation to reduce their balances with the Bank of England, and the reserve be maintained sufficiently for trade and general business requirements, there still remains the danger of inter- national complications ; a contingency which does not seem ever to have received that amount of consideration which its importance deserves. If the problem of putting the ultimate gold reserve on a satisfactory footing is ever to be thoroughly solved, it can only be by governmental action. To put the burden on the Bank of England alone, is tacitly acknowledged to be unjust. On the other hand, mutual agreements are apt to break down when the necessity for them is greatest. Besides, improved as the state of the reserves has been since the conjoint recognition of individual responsibility, it can hardly be held that, from a national point of view, the position is all that is desirable. But any material in- crease of effort on the part of the banks cannot be looked for. It follows, then, that any further step must be taken, if taken at all, at the expense of the nation. The cost would, doubtless, be considerable. An additional reserve of less than £10,000,000 would hardly be thought of ; but the interest on that sum at 2| per cent, would amount to £250,000 per annum ; enough to make any Chancellor of the Exchequer shake his head. All the same, it is a question if it might not be true economy to secure financial salvation at such an outlay. UVi SCOTTISH BANKING DURING THE 15ut tlu> oxpons(> ini.uht be mitigated. The simplest plan would he to keep the j^old at the Bank of England, but under the exclusive control of the Treasury. There might also be provision for an issue of notes (based on the stock of gold) under special conditions, to meet occasional and temporary requirements. Some portion of the Govern- ment balances, usually amounting to several millions, might be devoted tov^^ards providing and maintaining the reserve. On those occasions when that portion of the Treasury balances might require to be drawn on, notes (say of large denomination, to secure that their currency should not be unduly prolonged) might be issued. Other- wise, recourse would be had to the money market, where any desired amount could be had on easy terms, or the assistance of the bank would be invoked pro tempore, or such portion of the gold itself as might be necessary trans- ferred to the bank. Similarly in times of crisis, notes based on the national gold reserve might be issued to supplement those of the Bank of England ; thus tending to obviate the necessity for those violations of the Act of 1844 which, while justifiable, are by no means good form. Of course such a scheme would require the most careful and expert consideration ; and would necessitate minute arrangement of details by those specially conversant with the departments concerned. But it seems possible, if the national obligation were recognised, that an efficient and fairly economical system of gold reserves might be estab- lished and maintained. The expense involved might be readily far more than recouped by the mitigation of the acuteness of periodically recurring crises ; and, as a species of national protection, such a reserve might be hardly less important than our nominal defences. PERIOD OF PUBLISHED ACCOUNTS. 103 CHAPTER VIII. EVOLUTION. " Stands Scotland where it did." — Macbeth. The lapse of a period of time which is usually termed a generation has, as we have seen in the course of our sur- vey of the business aspects of our subject, produced great changes both in the character and conduct of Scottish banking. But the changes do not stop there. The tone and personality of the profession are largely altered. The banker of to-day is no more like his predecessor of the sixties, than the west-end advocate of to-day is like Mr. Counsellor Pleydell, The old Scottish banker was a most interesting, albeit not usually a very lovable char- acter. Cold-blooded, cool-headed, canny, with, perchance, a dash of pawkiness ; he was at his best in his ofhce. If he shone elsewhere at ail it was in church affairs. But the concentration of his interest was in his business. His bank either was superior to all the others, or he intended to make it so. He was content with what would now be deemed poor pay ; but in truth he did not work for re- muneration (that was a mere accompaniment of his duties), but with self-devotion to the one absorbing passion of his life, the welfare and aggrandisement of his beloved estab- lishment. He was not by any means indifferent to his personal financial interests, but he was of the same genus 101 SCOTTISH HANKING DURING THE as tlio private banker, identifying his own with his bank's interests. A tin de sihlc business man can hardly appreciate the old banker's frame of mind. To him work is self-interest, and devotion is only justified by its pecuniary results; to the other his bank's interests were as dear as if the establishment were his private property. Perhaps this arose to some extent from the more isolated and provincial condition of the Scotland of that day. At all events busi- ness conditions used to be more simple, and the banker was more directly in touch, not only with his own cus- tomers, but with the community. He knew all who had or might have dealings with him, so far as their responsi- bility went. He could tell Jack McQuirk from Sandy Canny without telephoning to have the " Mc" and " C " card drawers examined ; and Jack got t'he right-about whenever he put his head in at the door, while Sandy was bowed into an arm-chair before he had overcome his trepi- dation at crossing the threshold of capital. But a change has come with the keener struggle of competition, the wider range of men'? interests, and the less ingenuous character of people's lives. These are the inevitable ac- companiments of greatly increased population and of the grand developments of later years, when steam and elec- tricity have made relationships with the colonies as inti- mate as those of the three kingdoms used to be. Within doors the change is also marked. Time was when even in the largest bank offices in Edinburgh the pervading spirit was that almost of the family — the family, however, of that period when affection was com- bined with reverence in the younger members. Doubtless, we have to go back to the first half of the century for PERIOD OF PUBLISHED ACCOUNTS. 105 that state of matters ; the change having set in ere the period with which we deal had commenced. But it has proceeded with accelerating speed. The great increase in volume of business, the widely spreading systems of branches and correspondence, and the greater intricacy and multiplicity of exceptional details which inevitably accompany the advancement of civilisation, have rendered impossible the simple, happy life of the past. With multiplied numbers and increased subdivisions, direct- ness of touch is lost. Artificial regulations have to take the place of personal supervision. The organisation becomes more mechanical, with the danger that the mechanism may insensibly be trusted to instead of the supervision, although designed merely as the medium to facilitate the supervision. It is like outdoor manceuvres superintended through telescopes and by signals, where the direct interchanging touch of personality is lost. But it is not only the spirit of the age that has modified the character of banking in Scotland ; or it may be more accurate to say that one development of modern ideas has had a large share in that modification. The enterprise of the large joint stock banks in steadily pushing out their branch systems, gradually extinguished the local banks. This movement had been in progress long before the period with which we are specially deal- ing, but it was not till then that local })aiiking became a matter of ancient history, and that its spirit died out. The local banks were the successors of the older private banks, and differed but slightly from them in their manner of conducting business. Occupying comparatively small tracts of country, even when they had l)ranch offices, they knew and were known all round. Consequently, no IOC) SCOTTISH BANKING DURING THE reasonablo :ipi>lii'!ition tor banking; accommodation met with a refusal, and rural trade had an amount of attention which is impossible under a system of national banking where each bank seeks to base its prosperity not on the fortunes of a county, but on those of the whole country. It is a well ascertained fact that it is usually easier to obtain a banking advance at a head office than at a branch. The rationale of this is simple. An agent is, from the nature of his relationship to his principals, not only more diffident, but he is necessarily so tightly bound down by rules, as also by the spectre of supervision, that he will hesitate even where he has no doubt. In this connection it is well to remember that the local agents are not managers. At a head office, on the other hand, transactions are conducted on a larger scale, small risks will sometimes be taken " to mix," as stockbrokers would say, with other securities, or to avoid the appearance of stinginess in the fostering of industry. Besides, men always criticise a piece of business much more severely when another man does it, than when they do it them- selves. This position is the necessary result of the adoption of the national system of banking in preference to local banking. Every well managed bank maintains a stringent control over its branches ; and the more numerous and widespread the offices the more imperative will be the regulations. Complaints are often made by traders that they do not get the accommodation to which they are entitled. Of course the limits of their demands are much wnder than any banker w^ould acknowledge the i^ropriety of ; but, as we have seen, the grumble has a basis of truth. But, all things considered, it can hardly be doubted that. PERIOD OF PUBLISHED ACCOUNTS. 107 while local banking tends to confer greater advantages on the community, it does so at the expense of the banks. If credit is more readily given, the danger of loss becomes more acute. Besides, the ratio of expense is higher with small than with large businesses. At the same time the national system gives greater opportunity for establishing the banking system on a sound and powerful basis. Typical instances of failure illustratis'e of pernicious working on both systems are to be found in the Ayr Bank and the Edinburgh and Glasgow Bank. The former was a local bank devoting its energies to fostering the agriculture of a county, and ruining itself through excess of zeal. The latter was a comparatively large and widespread bank with an excellent connection which, with ordinary prudence, might have been a permanently prosperous concern. But it had two head offices, each of which acted as if it had full control of the resources of the bank. This want of central control occasioned it grave difficulties which were only allayed by amalgamation and the loss of all the capital. But if the banker has changed, his customers have changed also. Not only were there, as we have seen, more direct relationships between the banker and his customers, but the character of the latter was more in- genuous. The spirit of the age with its mottoes, "Dia- mond cut diamond," and " Deil tak' the hindmost," has introduced a mercenary spirit which has destroyed the fine old class of merchant traders who, shrewd and well able to protect their own interests, yet never dreamt of sharp practice. Their competition was above board, uncon- taminated by Yankee cuteness, and doubtful conduct was comparatively rare. Under present conditions, a banker 108 SCOTTISH BANKING DURING THE requires to cultivate the faculty of suspicion to a much ^eater extent than formerly, to avoid being victimised. In treating of the evolution of Scottish banking, it is instructive to go further back than the limits of the period under discussion. It is sometimes said that traces of banking in Scotland are met with before 1695 ; but this would appear to be a misapprehension. Of course there were money-lenders, and dealers in exchange, but of actual banking I have never seen any indication, nor has any one, so far as I am aware, produced any instance. The earliest bankers were semi-government functionaries — at all events they were actuated by the governmental tone. This arose from the circumstances of the case. Although not a Government institution, the Bank of Scot- land was erected under the auspices of the Government as a public institution. Its duties w^ere of a national and public character, while its emoluments were for private ap- propriation, just as in the case of any officer of the State. The case of the Hoyal Bank was essentially similar, and that of the British Linen differs from it only in so far as the initial efforts of that establishment were more directly connected with trade than with finance. This aspect of their constitutions was fully recognised, at least up to the period we treat of. The distinction between the "banks," and " banking companies," was absolute ; and of course the private "bankers" were a class by themselves. The last named disappeared finally more than fifty years ago, and had practically decayed at a still earlier date ; and the first named gradually dropped their superior tone in the excitement of modern rivalry. This result is much to be regretted, for there is no doubt that the sense of public responsibility was a material PERIOD OF PUBLISHED ACCOUNTS. 109 element in steadjang the management of the three old banks. Indeed, but for this higher tone, there is reason to fear that they might not so well have withstood the difficulties of the eighteenth century. But the energetic growth of the younger banking companies, which went to the pubhc instead of expecting customers to come to them, proved too strong a rivalry to permit of the main- tenance of the old-world dignity. ^Yith the decay of private banking, the old banks had, in some measure, lost access to the people ; for the private bankers (with the exception of Sir William Forbes, who stood on a higher footing than most of the others, and, perhaps, one or two more) acted as the lions' providers. Thenceforth, instead of the governmental functionaries' tone giving the lead, it was the banking companies, as exponents of modern trade competition, that moulded the character of Scottish banking. How far this has been publicly bene- ficial is a matter on which opinions may differ. I incline to think, however, that in any case it was inevitable. That it has had injurious effects can hardly be doubted ; but this is by no means inconsistent with national benefit. For the spirit of vicarious sacrifice, whether voluntary or involuntary, is perennially at work. Whither this evolution is trending, it is hard to say. It may be, perchance, to the selection of a more highly developed organism through the survival of the fittest, although, in the period of transition, the qualities which may in the future shine forth, are but dimly visible. Or it may be but a renewed example of the over-development and weakness — producing over-refinement — which ac- company the decline of mighty empires. But doctrines of the down-grade school have no honour in the countries to> 110 SCOTTISH BANKING DURING THE which tlioy rofer — the}' hurt susceptibihties, and, worse still, there is no money in them. In any case it is in- structive to discuss in detail various aspects of the inner life of Scottish banking. PERIOD OF PUBLISHED ACCOUNTS. Ill CHAPTEE IX. AREANGEMENTS AND FUNCTIONS. " Order is Heaven's first law." — Pope. In continuing our inquiry into the moral and esoteric aspects of Scottish banking, it falls naturally to deal with the details of the internal working of the Scottish banks. But it is questionable if considerations of symmetry and completeness would have secured its presence, as British writers are so little introspective that they treat more generally of causes and effects, than enter into descriptions of the machinery by which results are attained. Fortu- nately, however, in such matters our French friends are more logical ; and the present writer was reminded, at the close of a kindly and appreciative notice of his History of Banking in Scotland which appeared in La Be,forme Sociale of Paris, from the graceful pen of the editor, M. Pierre des Essars, that the omission of such details was a matter of regret. Fully recognising the justice of this criticism, the present opportunity is secured for the insertion of a descriptive chapter. The British reader is, at the same time, warned that it is of a purely elementary character, and may be skipped without detriment to any knowledge he may desire to have of the purport of this volume. 11 '2 SCOTTISH BANKING DURING THE rivliminary to the consideration of the functions of the hanks, it may be well briefly to describe the arrange- ments usually found in a Scottish banking office. The establishment usually consists of a governor, a deputy governor, extraordinary directors and ordinary directors; with, as executive officers, a general manager and a secre- tary. The governors and extraordinary directors take practically no part in the administration, their functions being almost purely ornamental. The real power is vested in the ordinary directors, the others being only consulted when there exists any desire for a division of responsibility. The other pubhc officers are an account- ant, a cashier (at the head of the cash department), and tellers (cashiers). The public office, in addition to the cash department, is divided into departments such as the cheque office (for current accounts), bill office (dis- counts, etc.), correspondence office, accountant's office (for general book-keeping), besides which there are the branch (superintendence) department, and law and transfer de- partment. The nomenclature of officers, and divisions of work assigned to each, vary somewhat in different banks — thus the chief officer of the Bank of Scotland is styled treasurer; of the Koyal Bank of Scotland, cashier — but in the main there is similarity. Of course, in branch offices, arrangements are on a smaller scale, but the system of business is the same. A description of the practice of banking in Scotland may best be pursued by following the items of the published balance sheets. First we deal with the liabilities to the proprietors. The capital is usually in stock trans- ferable in any quantities ; but some even of the large banks hold it divided into shares. In the case of the three PEEIOD OF PUBLISHED ACCOUNTS. 113 old banks, in virtue of their incorporation, no liability- attaches to the holding of their capital stocks, except that the Bank of Scotland stock is only paid up to the extent of 13s. 4d. in the £1, and consequently proprietors are liable for other 6s. 8d. per £1 of their holdings. The rest (an old term still retained by the older banks, signifying the re- mainder of assets after all provisions and appropriations' or reserve fund has alv^^ays been made a strong point vv^ith the Scottish banks ; and the British Linen Co. has lately achieved the feat of making its rest consider- ably larger than the capital. Other liabilities to pro- prietors consist of profit balances appropriated to dividend purposes, or carried forv^^ard as a nest-egg to the next year. Turning to the public liabilities, the most important department of a bank's business, so far as extent of clien- tUe is concerned, is connected with the deposit business. It is of two classes : creditor balances of current accounts, and sums lodged on deposit receipt. In both cases the money is held by the bank repayable on demand. No interest is now allowed on current accounts. On deposit receipts interest runs at present at 1 per cent.* — the lowest rate ever recorded. To secure interest, however, the money must be undisturbed for at least thirty days. Money can be lodged or drawn at will, no notice being required in either case. By an unwritten understanding £10 is re- garded as a minimum sum receivable ; but there is no official restriction. The number of depositors, as given in the blue book of 1875, was 417,657, with an average deposit of about £182 10s. The large extent to which the banking system commends itself to the public is strikingly shown by these figures and by the fact that, * Increased, 14th Oct., to 1^ per cent. 8 1 1 I SCOTTISH BANKING DURING THE including all ages and conditions of the people, full}'' one- eighth of the population were, twenty years ago, customers of one or other of the banks. Doubtless there is some over-lapping — one person having deposits v^ith more than one bank — but there is little reason to suppose that this element v^ould materially affect the proportion. Of the total deposits, according to the experience of five of the banks, 75 per cent, were held on deposit receipts, and 25 per cent, on current accounts. The proportion of deposit-receipt money is probably greater in the rural than in the urban district. It may be presumed that, since the date of the parliamentary inquiry, there has been a shght modification in these proportions, owing to the cessation of the allowance of interest on current ac- counts. A competent authority estimates the present proportions as 77 per cent, and 23 per cent, respectively. It would be interesting to know how far the number of depositors, and the average amount of deposit, have grown during the same period. As the total deposits have increased by 19^ per cent., it might be expected that the depositors now number nearly 500,000 ; but as the popu- lation has grown at a less rapid rate, it is probable that the principal increase has been in the average amiount of deposit. The next item calling for attention is the note circu- lation. Although not now of the relative importance in a bank's economy that it used to be, the right of issue is still regarded as one of the vital privileges. While there was no restriction on issues, the function was a highly profitable and inexpensive department of the banking business ; for, of course, the banks got the use of the money represented by their notes at no greater outlay than the cost of the manufacture of the documents, and the PERIOD OF PUBLISHED ACCOUNTS. 115 clerical expenses of issuing and retiring them. Even yet, when the restrictions now in force, combined with the largely extended over-issues necessitating the retention of a large stock of sovereigns, have practically abolished the direct profit on issuing, the privilege is of material benefit to the banks. This benefit they share with the pubHc. As is well known the Scottish banks have established branches in numerous sparsely populated localities where no other banking system could survive. Of course the cause assigned is Scottish thrift. But even the careful Scot could never have accomplished the feat on the basis of a metalhc till. It is because of their paper till-money that the banks are able to carry on these branches. So long as the notes are in the hands of the bank they repre- sent no actual value ; but they are very useful in so far as, by the simple action of passing over the counter, they at once assume all the functions of money. It is only then that the issuing bank is under the necessity of taking them into account in studying its reserve of gold coin. Moreover, the banks have the advantage of basing their gold reserve on their average circulation of each four weeks, and not on the actual issues. Their real circulations are often much greater than appears by the monthly statement pubhshed by the Government department (of which a specimen is subjoined). For a week of expanded circula- tion is only averaged, and the normal circulation is reduced to its lowest point at the end of each week. Owing to the active and systematic exchanges made by the issuing banks at the close of each week, the circulation is brought down to low-water mark for the returns to Government. These are made every four weeks ; and the average of the four weeks' figures, less the amount of the so-calhid autho- 116 SCOTTISH BANKING DURING THE rised issue, is the sum that must be shown to have been covered by gold coin at the head office or principal place of issue. It will be noticed that the Government statement shows the total amount of gold and silver coin in the hands of each bank, including the branches. Why this should be, is one of the riddles connected with Government supervision of the issues which bankers have for fifty years endeavoured unsuccessfully to solve. The coin at the branches does not count as cover for the notes. The denominations of notes issued are £1, £5, £10, £'20, and £100. Owing to the natural desire not to increase un- ClRCULATION OF SCOTTISH BANKS. An account, pursuant to the Act 8 and 9 Vict., cap. 38, of the amount of bank notes authorised by law to be issued by the several banks of issue in Scotland, and the average amount of bank notes in circula- tion, and of coin held during the four weeks ending Saturday, 28th November, 1896. Circulation Average Average Name and Title as set forth Authorised Circulation Amount of Coin in Licence. by during held during Certificate. Four Weeks. Four Weeks. Bank of Scotland £343,418 £1,180,615 £1,041,724 Royal Bank of Scotland - - - 216,451 1,006,470 964,665 British Linen Company - - - 438,024 923,051 645,946 Commercial Bank of Scotland - 374,880 1,009,352 772,735 National Bank of Scotland - - 297,024 896,243 761,263 Union Bank of Scotland - - - 454,346 1,051,277 769,143 Town & County Banking Co. 70,133 328,889 301,410 North of Scotland Banking Co. - 154,319 485,404 362,759 Clydesdale Banking Co. - - - 274,321 788,036 633,677 Caledonian Banking Co. - - - 53,4.34 158,702 124,570 necessarily their stock of gold, the banks endeavour to secure all retirable notes as soon as possible. For this purpose exchanges are made daily at every place through- out the country where two or more banks are represented, balances being settled by drafts on Edinburgh. Unex- changeable notes, i.e., those of banks not locally represented, are sent by post to Edinburgh, and exchanged there. PERIOD OF PUBLISHED ACCOUNTS. 117 The exchange at Edinburgh, which is the final note clear- ing for the whole country, is held daily in the Bankers' Exchange and Clearing House building, No. 23 St. Andrew Sqiiare (which is the joint property of the banks). A second exchange, for large notes only, is held on Satur- days at one o'clock so as to exhaust that day's collections. Settlements are conducted each alternate month by the Bank of Scotland and by the Royal Bank of Scotland, neither of which, however, has any responsibility in respect of the transactions. On Mondays and Thursdays, the balances are included in the general settlement of the exchange and clearing. On the other days of the week, unless a general settlement fall on any of those days, the exchange balances are combined with the general balance of the clearing of the same day. On Saturday afternoon the settling bank grants and receives vouchers for the balances, which are carried into the next day's clearing, and bear interest at deposit receipt rate. AVhen the balances of the general settlement have been struck, the particulars are entered in a record provided for the purpose, and the banks which are debtors in the settlement send, on the same day, to the banks which are creditors, letters inti- mating that in four days thereafter the respective amounts due will be transferred to their credit in London. At the same time the debtor banks pay interest on their balances for four days at 3 per cent. Failure duly to make the transfer entails immediate exclusion from the exchange and clearing. Where exchanges are established in pro- vincial towns, the exchangeable notes received at the local agencies must be exchanged there, and not forwarded to meet exchanges in Edinburgh or elsewhere. The banks are mutually bound to bring all tbeir exchangeable notes lis SCOTTISH BANKING DURING THE ti) the oxc'liiini:je rooms ; and not to issue each other's notes without permission. Three months' notice of with- drawal from the agreement is required. The remittance husiness is important more from the multiplicity of transactions than from its profitableness. Drafts (letters of credit), payable on demand, are drawn by any oflftce of the bank on itself or any other office of the bank, on corresponding banks in places in Scotland where the drawing bank is not represented, on correspondents in England, Ireland and throughout the world. The charges are very moderate. Remittances between branches with- in the same locality — for example, between Edinburgh and Leith — cost only the Government Id. stamp. Otherwise within Scotland the charge is Is. per cent, with a minimum of6d.(7d. including stamp, which is, of course, charged in all cases). The exchange with London is Is. per cent., and with the provinces of England and Ireland 2s. 6d. per cent. Remittances may be made to London without cost by transfer deferring payment for ten days, or by the issue of a draft at fourteen days' date. Since loth March last, drafts on Scotland and London, for sums not exceeding £5, are issued at 3d., and from £5 to £10 at 4d. Circular notes and special letters of credit for travellers abroad are also issued without cost to customers. There are numerous other remittance arrangements of a similarly reason- able character which need not be detailed here. The only other item among the liabilities to be con- sidered is the acceptances. This department of business arises from the superior credit attaching to the obligation of a banking house. Merchants therefore frequently request their bankers to accept bills which have been drawn on them, which, on suitable provision for meeting the accept- PERIOD OF PUBLISHED ACCOUNTS. 119 ance when due, the bankers undertake to do as a regular matter of business. In consequence of their acceptance, the bill becomes what is styled "bank paper," and is negotiable and discountable on much more favourable terms than had it remained a merchant's acceptance. Marginal bills issued to travellers authorising them to draw for any sums within a fixed maximum are also included in this category. These bills, or letters of credit, being presented to a banker, he marks the amount and date of payment of such sum as may be drawn through him. But probably the largest item among the acceptances is occasioned by the drafts of foreign and colonial banks accepted by the London offices of the banksJor purely remittance purposes. The acceptances are often classed with the drafts, as par- taking with them of the character of remittance business ; but they have sufficient individuality to be treated as a special item in bankers' balance sheets. Indeed, by not a few, this department of business is regarded as one attended by risks of a specially hazardous description. We have now to treat of the other side of the bank's balance sheets, viz., the assets. The first item claiming attention is a composite one — the banking advances. Un- fortunately some of the banks do not give the amount of their discounts separately, and some even group all the advances in one sum. But for practical purposes it is necessary to divide the advances into three groups, (a) The bills discounted either are, or are desired to be, the largest of these sections. This is, so to speak, the most " bankingest " of all a bank's business. But there are bills and bills, from the bank paper we have already re- ferred to and the finest mercantile acceptances, to the trumpery promissory note of the struggling trader, or the 1-20 SCOTTISH BANKING DURING THE wiiul bill of the man about town. The highest class of paper is. of course, taken at special rates. Floating balances are largely placed thus in the London market, when opportunity offers ; but even locally special lines of discount are arranged in particular cases. But between the two extremes we have mentioned, there is a grand field in which the expert banker can reap a good harvest without an undue quantity of tares. No doubt the cash payment system which has grown so much in recent years tends to displace this class of paper ; but even yet there are many shrewd and honest traders without much capital who, when encouraged, bring good business to a bank in the process of building up their own fortunes. For ordinary discount purposes, bills are grouped as London and " other," of three months, four months and upward currencies. When the money market is particularly weak it is customary to introduce a two months' rate. London bills are usually charged h per cent, less than other ; and each grade of currency differs by h per cent. These terms are for mercantile paper ; other acceptances being charged higher rates. (b) Advances on current accounts form another impor- tant class. They are divisible into (1) cash accounts, ("2) other secured overdrafts, and (3) unsecured overdrafts. (1) The cash account, or cash credit, is based on an agreement with the bank, embodied in a formal bond, between three or more parties, that the drafts of one of them (styled the drawer), in account current, are guaranteed to a maximum amount on balance, with interest accrued. The parties are jointly and severally liable for the whole debt, including other obligations up to the amount of the credit, and the bank is entitled to withdraw the credit and call up the debt PERIOD OF PUBLISHED ACCOUNTS. 121 at any time. At one time, but not within the period we are deahng with, a commission, in addition to interest, was charged on the cash accounts, but the practice does not seem to have been long continued. Within the amount of the authorised credit, lodgments and drawings may be made at will, interest being only charged on the debtor balance at the close of each day's transactions. It is an excellent system, especially for a poor country, as Scotland used to be. But great accumulations of capital, and the low price of money, make it now an unduly expensive method of getting accommodation. It was at its best dur- ing the period of free issues, when, as an ally of the notes, and as a means of extending their circulation, it was a great source of profit to the banks. But the day of the cash ac- count is practically done. (2) Overdrafts of accounts are also permitted against specific securities, such as holdings of the capital stock of the bank itself; stocks, shares and bonds of other approved companies or public bodies transferred to the bank ; letters of guarantee by substantial securities ; policies of life assurance within surrender value, or with special provision for payment of premiums ; bonded ware- house warrants, etc. Advances to holders of bank stock are particularly simple on account of a usual provision of lien on the part of the banks over the stock of proprietors indebted to them. This facility used to be held out as a special in- ducement by promoters of new banks to intending sub- scribers for shares. (3) Unsecured overdrafts are quite irregular, and are distinctly discouraged. At the same time it is practically impossible to avoid them. It is a simple matter to return Bill Bounder's cheque ; but a prudent banker will not offend his esteemed customers, or cast a slight on their credit, for the risk implied in IJ'2 SCOTTISH BANKING DURING THE inakinj^ an iidvaiu-e to them without pre-arrangement. It is. however, always expected that authority to overdraw be obtained beforehand ; indeed, even courtesy would im- ply that this be done. This is one of the departments in which the expert banker shines. He knows when quietly to say " No," and when, without a moment's hesitation, to say " Delighted, ray dear sir, to give you any accommoda- tion ". The amateur banker hesitates in both cases, with the result that Bill Bounder thinks he may try again, while Sandy Soundman feels that what he intended as business is regarded as a favour conferred. (c) The third group of advances to be considered is the loans on Stock Exchange and other special securities. Although this is now an extensively cultivated branch of the banks' business, it was not one originally devised by them. On the contrary, its earliest practitioners were vigorously denounced by the orthodox bankers of their day. This class of business originated with the Exchange Banks, themselves a product of the railway mania time, and of which the late Duncan McLaren, a distinguished citizen of Edinburgh (subsequently M.P.), and George Kinnear (one of an Edinburgh banker's family), in Glas- gow, were energetic pioneers. The crisis of 1848 proved, however, too much for them in their immature experi- ence. All but one, which still carries on a sort of gal- vanised existence, have been swept away, and the banks proper now reap where they sowed. The system has, however, been modified, the rash and hap-hazard all-trust- ing frame of mind having been discarded. The practice now is that marketable securities are made over to the bank against an inoperative advance of say four-fifths of the market value for a fixed period (say three months). PERIOD OF PUBLISHED ACCOUNTS. 123 At the end of the fixed period the loan must be repaid, unless a renewal be agreed on. This implies a revaluation of the securities and a reconsideration of rates of interest. The minimum rates, except in special cases, are the same as those for Scotch bills. (d) Advances are also made in exceptional cases on heritable (or real estate) bonds. But from the essential principles of banking business this department is always restricted to a small proportion of the total advances, the liquidity of which is a matter of primary importance never lost sight of. The next item among the assets, customers' liabilities for acceptances and indorsements, is of the nature of bank- ing advances, although it does not involve absolute ad- vances until the maturity of the acceptances ; and in cases where the money has been lodged, or where cash is paid at the due date, no advance occurs. Still there is always the liability to make an advance, except in the few cases of predeposit. The heritable property, or real estate, of the banks is an item of much importance. But it hardly comes within the category of subjects pertaining to practical banking. Besides, it has been treated of at some length in the first part of this book. It may, however, be re- marked, that it is usual to divide the property into two or three classes : (1) Bank buildings at head office and branches from which, of course, no direct return is ob- tained. (2) Bank property in London, if any. All the Edinl;urgh and Glasgow banks have offices in London, and in almost every case the building is the freehold pro- perty of the bank. As a rule, a considerable portion of the London offices is let to other companies or firms. And 1-21 SCOTTISH BANKING DURING THE (3) heritable property yielding rent. From various causes, but chiefly in the reahsation of bad debts, houses, business premises and land come into the bank's possession. Of course, the possession is meant to be only temporary, but, as some is sold, other falls in, and, in any case, such pro- perty is not at all times saleable at an acceptable price. Reference has already been made to the Clearing House in its relationship to its little, but older, sister, the Ex- change ; but it will be necessary to devote special atten- tion to it. Although there are comparatively iew towns in which an organised Clearing House has been established, facilities exist all over the country for the expeditious re- tirement of cheques by direct presentation by post, and the return of " debit vouchers " which are cleared in their place. The Edinburgh Clearing House is the final clear- ing, in which not only the local business is transacted, but the balances of clearings elsewhere, the " debit vouchers " just mentioned, and the balances of the note exchanges are included. The house is open every busi- ness day at one o'clock, except on Saturdays and local holidays, when it meets at eleven. Additional clearings are arranged for at the terms of Whitsunday and Martin- mas when business is specially voluminous. Each repre- sentative of the banks is furnished with a set of books for the various banks (formed for writing in duplicate by means of impressive paper interleaved), in which the documents delivered by him are entered, summed, and tested before he goes to the Clearing House ; and he hands to each of the other banks a duplicate list along with the documents delivered. He has also a book in which he strikes the balances. In addition to demand documents, bills domiciled at local banks, and documents PEEIOD OF PUBLISHED ACCOUNTS. 125 payable elsewhere in Scotland where the Clearing Bank has not a branch or correspondent, may be passed through the Clearing House. The two oldest banks undertake the settlement of the clearings of each alternate month. On Mondays and Thursdays the balances are included in the general settle- ment of the exchange and clearing. On other days the settling bank receives from those banks which are debtors on the clearing settlement (with which is included the balance of the exchange) and gives to those which are creditors, exchange vouchers for the respective balances, within one hour after the striking of the clearing balances. These vouchers are brought into the next clearing, and bear interest from the date of issue till the date of that clearing, at the deposit receipt rate current on the day of settlement. The interest is included in the voucher given for the balance. Of course, the banks undertaking the settlement of the clearings incur no responsibility whatever in respect of these transactions ; and all ex- penses connected with the Clearing House are borne by the banks in equal proportions. The presently existing rules are dated 25th May, 1888. The branches of the Scottish banks are agencies pure and simple ; not partaking of the nature of branch banks, such as are to be found in England and elsewhere. The agent is merely the hand of the head office, put out or drawn back as directed. This system tends to preserve soundness in the business ; but it curtails it, and dwarfs the banking experience of the staffs. Of course in the large towns the agents require to have a little more latitude ; but they are apt to find that with more latitude they may get out of their bearings and be l-JC) SCOTTISH BANKING DURING THE required to make their own reckoning. A Scottish agent usually finds that his best plan is to keep within the letter of his instructions, and never to take personal re- sponsibilities. The business of the bank may be stunted in the locality ; but the head office will have all the more money to finance with ; and the agent acquires a reputa- tion for careful management. This state of matters is a constant source of discontent among traders in the pro- vinces ; but any material alteration of it is improbable. It is the inevitable result of the centralising process which has been in operation for many years past. Almost all local banking vitality has been eliminated ; and the small remnant will probably be obliterated ere long. From our sketch of the functions of the banks, it will be seen that banking in Scotland is similar to banking elsewhere. When allusion is made to the peculiarities or specialties of the system, little more is meant than that particular conditions have slightly modified general banking arrangements. Perhaps the most distinguishing, and undoubtedly the most lauded, of Scottish banking practices, is the cash account. And yet, after all, what more is it than an advance under collateral guarantee '? The mind is apt to be dazzled by terms. If the system had been styled "joint guarantee credits" no one would have seen anything extraordinary in it. While saying this we do not, however, mean to ignore the great work achieved under its operations. But it was not any in- genuity of system, but simply the fact that shrewd bankers made advances to well selected traders, that secured success. In a word, it was the conditions then existing both as regards men and business, not any PERIOD OF PUBLISHED ACCOUNTS. 127 peculiarity of machinery, that should be studied. The same work would be impossible now — even the type of banker is not now cultivated. Indeed the Scottish field is but a poor training school. No doubt successful bankers from all quarters of the habitable (and unhabitable) globe hail from Scotland. But it was as clerks they left their native land ; they learned to be bankers elsewhere. The Scottish banks are good nurseries of the raw material ; but they do not manufacture bankers in any considerable quantity. 1*28 SCOTTISH BANKING DURING THE CHAPTEE X. BANK AGENTS.* " He who is more elevated by the distinction of an honourable appoint- ment, than oppressed by a sense of its obligations, is not likely to improve either himself or others." — Professor W. B. Hodgson. The position of a bank agent, or local manager, is one of very considerable importance. In Scotland he is a better known member of society than in England, as the total absence of private bankers and small joint-stock banks, together with the extended systems of branches of large establishments, devolves upon him in great measure the position of the banker strictly so called. Strictly speaking, a banker is one who, having funds of his own employed in banking business, does himself take an active part in managing the business. Many bank officers are holders of stock of the banks with which they are connected, and might thus seem to come within the above definition ; but, in as far as their connection with the banks is not in virtue of their share in the capital, but by reason of office specially conferred on them for specific remuneration, it is evident that they are not thus entitled to the designation. In point of fact, only members of private banking firms can be properly called bankers. But as in Scotland there are no private bankers, * Scottish Banking and Insurance Magazine, Dec, 1880. PERIOD OF PUBLISHED ACCOUNTS. 129 and as it would be an absurdity to say that there are no bankers, it is usual to consider all bank officers who are endowed with official powers as bankers. In this category, then, will be included general managers, secretaries, local managers or agents, and all other officers who have the right to sign in name of the companies whose business they are conducting. In this sense bank agents form the largest proportion of the body of bankers in Scotland, for, while there are about 1000 of them, there are only about fifty other bank officials. It is not, however, from their number alone, or chiefly, that they are particularly deserving of attention. Al- though they are subordinates, acting under the super- vision of their head offices, they have scope for a large amount of independent judgment and action ; and they hold an influential position in their respective districts, as among the most important members of the business and professional classes of the community. A head office will not interfere much with an efficient agent, but will rather be prejudiced in favour of his representations. But if he exhibits deficiency of judgment, or want of business habit, his returns and reports regarding the business of his office will be subjected to specially minute inspection, and his liberty of action will be circumscribed. It is in the matter of business habits, and technical knowledge of banking, that agents are usually most de- ficient. Self-preservation makes them cautious in giving advances. Indeed, applicants for accommodation, es- pecially when the amount involved is considerable, sometimes find head offices, or private bankers, more ready to entertain their proposals than branch offices. This is not, how(!Vcr, so much owing to the action of 180 SCOTTISH BANKING DURING THE iif^onts, as to the tact that principals are naturally more dirtident in matters brought before them through the medium of representatives, than they are in direct com- munications. This fact is often adduced as an argument against the branch system of banking as compared with a multiplicity of banks. But it must be recollected that the former principle has the advantage in the all-important elements of solidity and the economy of capital. As re- gards technical and business knowledge, bank agents in this country are probably behind their brethren of England, and even of Ireland. In these countries, but especially in England, the practice of appointing outsiders to the more important offices in banks is much rarer than in Scotland. The typical Scotch bank agent is one who, successful as a country lawyer, or perhaps active and intelligent as a provincial shopkeeper, or influential as a rural residenter of means, has sought to employ the comparative leisure he has attained to, in the light and respectable, if not over remunerative, work of superin- tending a village bank office. It is not expected that he should be well versed in the technicalities of his new occupation. If he can show a good balance of deposits he is considered a success. And he usually does so, unless, as sometimes happens, there is not much floating capital in the district ; or over competition has produced an insufficient average among several rival banks. Now, laying aside the question of local influence versus technical knowledge, as a matter of policy in bank management, it does seem advisable that the representa- tives of the various banks throughout the country, and at sub-offices in the large towns, should be thoroughly acquainted with the leading points pertaining to the PERIOD OF PUBLISHED ACCOUNTS. 131 theory and practice of banking. The system of branch office management pursued in Scotland makes this of comparatively small importance as far as the banks themselves are concerned ; but, in his intercourse with his customers and friends, many a bank agent must feel that, beyond the ordinary routine of his office, he is somewhat deficient in sustaining the character of a banker. It is true that in this respect he is no worse than many other bank officers ; but they will not readily rise to official rank unless they set themselves to show more aptitude for their business, while he is placed in a position from which the public, if not his directors, expect special knowledge. Agents, as a rule, have a good deal of spare time which they might advantageously occupy in the study of banking, currency, and general finance. There is a popular idea that these are dismal subjects ; but, if they are not so absorbing as science, philosophy, and art, they are full of interest to those who study them aright, and especially so to those who have the opportunity of practical contact with their operations. Besides country agents, to whom we have been speci- ally referring, there are the agents or district managers in the large towns. These, as a rule, are practical bankers who, although subject to supervision, have, on their own responsibility, to carry on from hour to hour large trans- actions without previous reference to their head offices. This is a necessary consequence of the nature and magni- tude of the business of a great centre of connnerce. Thus the offices of the Edinburgh banks in Glasgow are, as far as the public is concerned, independent banks. The principal branch offices in Dundee, Aberdeen, and else- where, are similarly circumstanced. It mi^^lit he well il, 132 SCOTTISH BANKING DURING THE in such cases, the chief local officer were raore generally designated "manager," as the term "agent" implies more limited powers than are accorded to the banks' representatives in such large cities. The tendency lately shown to confer the title "general manager" on the principal officer of a bank in its corporate capacity seems to point in this direction. An important question in connection with the duties of bank agents is the propriety of canvassing for deposits. Deposited money is the life-blood of banks, and to its preservation and increase the efforts of agents are mainly devoted. It may be advisable in some cases to cultivate the custom of a good borrower, but, as a general rule, a bank has no difficulty in lending out its funds. It is true that money does at times accumulate inconveniently in a banker's hands, but over a series of years the money market adjusts itself, and even when he has more de- posits than he actually requires for his business, a banker will not willingly part with his deposit customers. But while the prosperity of a bank depends, apart from management, on the amount of its deposits, it by no means follows that the attainment of that end will justify all efforts for its accomplishment. A high tone of bank- ing morality will not sanction systematic canvassing for business. A banker degrades his profession by such action. The public should be his clients, not he theirs. A commercial traveller does not demean himself by can- vassing for custom, because that is the legitimate object of his work in life, and because his deahngs are vsdth men whose business it is to have as much knowledge of his wares as he has himself. But, were he to call at private houses and solicit orders, he would become a pedlar, and PERIOD OF PUBLISHED ACCOUNTS. 133 would thus fall in the social scale. Similarly, a banker who asks people to transfer their accounts from another bank to his, places both himself and the institution he represents in a position inconsistent with the independ- ence of a banker, and unworthy of a great establishment. There is a great difference in this respect, although it is not always perceived, between banks and insurance companies ; for it is one thing for an insurance agent to endeavour to secure a specific transaction which might be carried through in a thousand different ways, all re- quiring explanation to be understood by most persons, and an altogether different thing for a bank agent to seek surreptitiously to undermine a continuous business relationship, such as exists between a banker and his customers, without any show of advantage to the person solicited. A bank agent should attract business ; he should not require to solicit it. But, while it is inexpedient for a banker to hunt for business, it does not follow that he is to sit passively in his chair waiting for customers, like a spider for flies. The most successful agents are those who are well known as active, practical business men. Tennyson's " Northern Farmer's" advice to his son was, " Doant thou marry for miinny, but go;i wheer munny is ". Without entering on an examination of this dictum as a point in casuistry, it may be held as a fact, that bank agents who are moving among the moneyed people of their districts, and who are best known and respected by the well-to-do of all classes, are much more successful in the long run than those who go about hat in hand to pick up the small deposits of persons whose transactions are not sufficiently important to make it a matter of difticulty to leave their l:vl SCOTTISH HANKING DURING THE banker. Nominally all the banks discourage canvassing ; !uul. althou^'h one or two of them have more or less in- dulged in it, it is not regarded as good form. But a banker should be a " known " man. He should be seen at " kirk and market," as the saying is ; his name should appear in connection with religious and philanthropic objects, he should not hide his light under a bushel ; and while he need not bother people like an " up-to-date take- 5'our-life " insurance canvasser, he should mix freely and continuously with other men. Social functions should be his natural habitat, and if he have the gift of speech or other accomplishment, it is well that it should be in evi- dence. Unknown bankers may be as wise as Solomon, but they will do little towards extending their business compared with their brainless rivals who are known to every one. PERIOD OF PUBLISHED ACCOUNTS. 135 CHAPTEE XI. BANK OFFICERS.* " Very few live by choice : every man is placed in his present condition by causes which acted without his foresight, and with which he did not always willingly co-operate." — Johnson in Rasselas. In its business aspects, banking in Scotland has been brought to a point of perfection which has called forth the commendation of economists in all nations. But it is to be feared that the energies of Scottish bankers have been so exclusively devoted to the v^ork in hand, as to leave very little leisure for theoretic study, and almost entirely to divert attention from the question of the well- being of the personnel of the profession. So stagnant has been the condition of Scottish bank clerks, that in Scot- land banking is popularly regarded as the most dismal and hopeless of respectable professions. A Scottish bank clerk vegetates — there is life in him, possibilities, latent faculties, but the almost invariable practice is to leave these dormant as long as possible. Training, in the sense of gradually educating the embryo banker for business responsibilities, is virtually non-existent in bank offices. Valuable work in this direction is now being carried on by the Institute of Bankers, but it is essential that, in addition to general and theoretic knowledge, experience * Scottish Bankinrj and TnHurancc Magazine, Oct., 1879. 18»; SCOTTISH BANKING DURING THE shoiilil be acquired in practice. But in the majority of Scottish banks the yount:; men are not only left to pick up their knowledge as they best may, but every generous im- pulse, laudable ambition, or inducement to activity and interest is chilled, if not annihilated, by the compara- tive inattention to which their special interests are sub- jected. That this matter has, in one shape or another, re- peatedly been considered by directors and managers is unquestionable. What we object to is, that no permanent solution of the question has been seriously sought for. Whenever it comes up it is settled by some temporary measure. An all-round bonus, a general increase of salaries, or a few special promotions, are the expedients with which murmurs are suppressed for the time being. Many will say, and actually do say, " What more can be done '? Banking at best is but a slow and monotonous business in which prizes are few and difficult of attain- ment. Besides, most of the w^ork is of such a nature that it does not merit gi-eat remuneration." This is the posi- tion usually taken up by laissez fairs bank philosophers, and they think that nothing further can be said on the subject. For our part, we agree with their premises, but we demur to their deductions. We believe that banking is a monotonous and slow business, without many induce- ments to energy or opportunities for ability, seeing it has been systematically made so ; and we do not doubt that, for the most part, clerks' salaries are in accordance with the nature of their employment. The root of all the nerveless languor, hopeless discon- tent, and spasmodic dissatisfaction so often displayed by bank clerks is to be found in the absence of promotion. PERIOD OF PUBLISHED ACCOUNTS. 137 The Psalmist's words, that " promotion cometh neither from the east, nor from the west, nor from the south," are hterally exempHfied in the case of Scottish bank clerks, although, doubtless, they were not designed for such an application. The majority of good appointments in bank- ing establishments in Scotland (in England and Ireland the conditions are reversed) were, until lately, conferred on outsiders. This practice was brought about, inno- cently enough, by the manner in which the banking system was developed. When branches were being struck out, exterior influence was generally necessary to the formation of a business connection. But it by no means follows that, where that end has been attained, a continu- ance of the system is advisable. Indeed, it is demon- strable that, by the perpetuation of the practice, the banks are themselves losers. While they were supporting a large array of country lawyers and tradesmen for the sake of their "countenance" (the work being done by bred bankers in a subordinate capacity), they were yearly ac- cumulating in their service, at slowly increasing salaries, large bodies of men who, quahfied by years of service, would gladly have undertaken both the responsibilities and the duties for the same remuneration as is paid to the agents, and leave their clerical duties to be performed by younger men at smaller salaries. This would result in a sensible reduction in salary expenditure at the larger offices. But not only so. Branch work would be cheaper and better done, as, with professional agents, extra assist- ance might to some extent be dispensed with. Some agents may feel aggrieved by these remarks, but we would submit the following considerations to their un- biased judgment. Natural shrewdness and business-like 18S SCOTTISH BANKING DURING THE qualities, combined with prolonged banking experience, doubtless enable most of them to fulfil their duties in a satisfactory manner ; but what were their initial experi- ences '? For it is in regard to new appointments only that we are referring. Did they not feel very much out of their element in taking charge of an entirely new kind of business ? Moreover, would they consider it a safe or judicious proceeding to entrust their respective businesses (in which, presumably, they served long and laborious apprenticeship) to the direction of men bred to other trades? Without doubt they would condemn such an action as unwise, and, if done to their prejudice, as unjust. The point of view of the old unpromoted bank officer is analogous. Ne sutor ultra crepidam. It is not specially, however, in regard to agencies that our remarks apply, but to the system, or rather want of system, which prevails in connection with the advance- ment of young bankers. From the time of their entrance into the service they should have reason to feel that they are in a current of promotion, from the benefits of which only their own incompetency can exclude them. A heart- felt esprit de corps should be carefully encouraged in each establishment. This, however, can only be accomplished by making the staff happy in their present circumstances and hopeful of their future prospects. It is but poor ser- vice whose spirit is found only in pay. If higher and more generous feelings are not brought actively into play, there must be some radical defect either in the men them- selves or in the arrangements to which they are subjected. And this brings us to another point. We have hitherto spoken mostly on behalf of the junior officers, but we do not desire to delude them into the belief that they are ill- PERIOD OF PUBLISHED ACCOUNTS. 189 used. We believe that more beneficial arrangements might be made for their advancement, but on the other hand, it cannot be doubted they have much to be thank- ful for. A bank clerk's circumstances will contrast very favourably with those of any other description of clerk, with, perhaps, the exception of the Government service. The one point in which he is unfavourably placed, is the difficulty he experiences in rising to a higher position. Lawyers' and merchants' clerks, while not as a rule in as easy circumstances, have much wider possibilities open to them. It is this that has induced us to bring forward their claims at the present time, and to seek to preserve to them, if not a practical monopoly, yet a large share of the opportunities which legitimately offer in their own pro- fession. Let them not forget, however, that much hes in their own power towards the attainment of this end, in earnestly striving to qualify themselves for official responsi- bilities, by diligent study of all matters connected with the history, theory, and practice of banking. In this they will as truly be fulfilling their duty to themselves as to their employers. In the opinion of many the discussion of this subject may not seem germane to the public view of business affairs, but should be left entirely to the realm of private adjustment. If, however, it be remembered that the suc- cess of business depends not alone on the few minds and l)odies who have the direction of it, but to a large extent on the combined and mutually aiding efforts of all who are engaged in it, it will be seen that the condition of bank- ing staffs is a very important one both for the proprietors and for the public. As well might it be said that a govern- ment need (jnly appoint a general and give him a sufficient 110 SCOTTISH BANKING DURING THE number of soldiers, counted by head, irrespective of quality or of physical or moral conditions, wherewith to conduct a campaifjn. A bank staff should be carefully and con- siderately graded from the top to the bottom, infused with loyalty and esprit de corps, filled with enthusiasm, and insensibly convinced that conjoint devotion to the interests of their establishment is consonant with their lifelong welfare. Such a condition is easy of attainment, It does not mean extravagant pay or little work. It means the truest economy, and the most successful business results. But it involves some sacrifice on the part of superiors to consideration of their personal relationships to their sub- ordinates. PERIOD OF PUBLISHED ACCOUNTS. 141 CHAPTER XII. STAFF ASPECTS AND THE INSTITUTE.* " The constant service of the antique world, When service sweat for duty, not for meed ! Thou art not for the fashion of these times, Where none will sweat but for promotion." — As You Like It. To the young mind — to the mind so long as it retains its youthful freshness — advancement in business and social position is a matter of primary importance. And yet, in the seething multitude who are ever pressing forward, the fortunate form a very small minority. The great majority meet with disappointment after disappointment, and either learn the truth of Bacon's reflections on " Great Place," and accept their lot with Christian cheerfulness, or drift into chronic and unprofitable discontent. " It is a strange desire," says the philosopher, " to seeke Power and to lose liberty ; or to seeke Power over others and to lose Power over a Man's Selfe." For the lowly place is unquestionably the most truly independent condition. But the desire to rise in the world is inborn, and, when pursued in a right spirit, is unquestionably laudable. Some must rule over others, and to leave the higher offices to the accidents of birth, or of chance, or of caprice, would be injurious to the common interest. Thus the desire for advancement is not * Scottish Banking and Insurance Magazine, Juno, 1882 ; Juno, 1894 ; Dec, 1894. I JJ SCOTTISH BANKING DURING THE only !i inattor (if justifiable self-interest, but is even a public duty. It cannot, however, be said that the most successful men are, as a rule, the most worthy. The theory that the most able men naturally rise to the surface does not by any means hold good throughout. Genius, indeed, when of a very high order, will undoubtedly assert itself ; but with ordinary humanity, many potent factors of questionable character, which can only be overborne by the greatest minds, generally rule the earthly career of mortals. Of these self-assertion is one of the most powerful. The world takes most men at their own estimate. If one has no doubt of his own abilities, if he persistently presses his claims, and ruthlessly elbows others aside, he is pretty sure to secure recognition. Most men are too indolent or too blind to seek for or to see the talent that \\all not vulgarly assert itself — the " gem of purest ray serene, the dark unfathomed caves of ocean bear". The village Hampden, the mute inglorious Milton, the Cromwell guiltless of his country's blood, are left now, as in Thomas Gray's time, "to waste their sweetness on the desert air ". Influence also exerts a baneful power against which merit hopelessly exhausts itself. The chance of being born a relative of a man in power, or having become allied to him by marriage, will prevail in the case of the most meagre intellect, when know- ledge, experience, and every other true qualification are persistently unsuccessful. Another royal road to favour is persevering, unwavering toadyism. In some respects this is the most certain method of all, as it is the most ignoble. Few men, if any, can resist the subtle flatterer, who weaves his meshes full in the view of his victim. " Surely in vain the net is spread in the sight of any bird," says Solomon ; PERIOD OF PUBLISHED ACCOUNTS. 143 but the modern capacity for assimilating flattery is ex- tensive. The man who will "stoop to conquer" by low arts is almost certain of success. Let him sing psalms with the pious, consort with the sinner, gossip with the scandal- monger, hang about the great man's son's club doors to run his errands, devote himself to church work, and con- scientiously secure his future worldly interests by sacri- ficing his present nobility and virtue, and fortune will pour her favours on him. H5rpocrisy is an old and generally admitted method. So well, indeed, is it known, that the dissembler must now assume the mask of " unaffected piety," and this course is most successful when used as an accessory of other arts. As, however, it requires a large amount of dexterity, and inconvenient self-restraint, its votaries are not, perhaps, quite so numerous as its successfulness would warrant. It is still, however, much cultivated, mostly in an off-and-on kind of way. It prevails generally with the best people, and is least successful with the worldly, although the latter are prone enough to avail themselves of the services of those who seem to be religious. It is extraordinary how slow the world is to recognise the fact that the true saint (and there are many true saints in the world) does not flaunt his re- ligion in the faces of others, but lets it speak through the medium of his walk and conversation. The role of the importunate widow is also highly suc- cessful. Indeed the " poor mouth " generally is a great institution, and wonderfully helpful in a life career. It does not secure long steps, but the multi])licity of small ones it gathers in are quite as good. Moreover, there is no need to discontinue the practice with advancing pros- perity, you can always be poorer than some other people. 1 1 I SCOTTISH BANKING DURING THE Many a poor t\'llo\\ , too proud to complain, or to sacri- fice his conscientious independence, is distanced in the race for promotion by the whining of others actually less onerously weighted than himself. It is a curious fact, moreover, that this meanness hardly ever fails, for although some people pay no attention to its devotees, there are always some weak enough to be taken in. Many persons, guiltless themselves of such mean ac- tions, and too unsuspicious to perceive them in others, will deem this picture overdrawn. But it is not so. We are no misanthrope. We believe that there is much true earnest- ness and righteous purpose in the world — that many men, while they strive to rise, have no desire to do so by tramp- ling on the rights of others, or by supplanting through invidious courses. But we speak what we have seen and known, and it is simply in accordance with the recorded experience of past centuries. Wickedness does triumph in the world now as it has done in the past. Its methods change, and, with advancing civilisation, it assumes more subtle phases ; but its power is ever present. The ingenuous youth must not, however, give way to despair when he contemplates the many chances against him in the battle of hfe. Good and earnest work, true purpose and steady perseverance will always greatly benefit him. He may see himself distanced by men who prefer by-ways and short cuts to the King's Highway ; but he will secure the approbation of those whose opinion is of most value, and he will ever have a noble consciousness of honourable action. The price some men pay for their good fortune is infinitely extravagant. They debase their minds, expose themselves to continual humihation, and sacrifice the highest pleasures of life for a reward which never PERIOD OF PUBLISHED ACCOUNTS. 145 satisfies them. For their greed is insatiable, and the more they get the more they grasp at. The longer and more honom-able road is the more satisfactory. He who walks in it need never be unhappy, although he may never reach the goal. But it is quite permissible that he should learn from his rival the wisdom of the serpent, provided he retain the harmlessness of the dove. He should avail himself of every honourable means of advancing his interests. Many men let opportunities slip for want of energy or boldness in advancing their claims. The study of character is a great aid. Men in position like, as a rule, to be asked for their patronage, although some, the stronger-minded, are indifferent on the matter. Applications for situations or advancement seldom do the applicant any harm, and they often do him good indirectly, even when they fail in their immediate object. Importunity is often successful where the highest qualifications are ignored. Knowledge of the ways of the world is of great importance, and does not imply concurrence with them. A wise head and a sound heart are the best securities for a happy business career. One of the most difficult, as it is one of the most im- portant, duties connected with the management of a bank, is the selection of representatives and heads of departments. To its due fulfilment would be needed intuitive perception and knowledge of human nature in an exceptional degree. There are hardly any (]ualities, however, in regard to which people more frequently de- ceive themselves ; so much so that they usually consider judgment of others as a matter of great simplicity. For similar reasons, the matter of appointments is not usually deemed a serious one, but rather as an opportunity for indulging in the pleasure of patronage. Any one wbo has 10 1 J(i SCOTTISH BANKING DURING THE tiikon tlio tremble to study the subject must be well aware of the palpable mistakes perpetually being made in the matter of appointments under one regime, and the infre- quency and comparative unimportance of errors under another. But there is a further and a surer test. It will often be noticed that one establishment is, over a series of years, stationary or retrograding, while its neighbours, or some of them, are expanding in a more or less satisfactory manner. The remark is then frequently made of the one that it must be very energetically managed, and of the other that it seems to have gone to sleep. Energy in business is, no doubt, a valuable and powerful quality ; but judiciousness and correct policy are much more im- portant ; and in all probability the remark is not accurate ; the real reason of the difference being that, in the one case, the management has a thorough knowledge of human nature. No one is more liable to be imposed on than the manager of a large estabHshment. It is utterly impossible that he can know those by whom he is surrounded through- out the extended system, of which he is the centre, unless he have not only that intuitive perception to which we have referred, but have or make the opportunity of testing the spirits as they pass before him. Some find it easiest to regard all men as alike, unless they show themselves to be different, and play them as the pieces on a draught- board. Others see differences, and while the mass are mere pawns, delight to honour their selected rooks and knights who move in fixed steps which can be previously calculated on. As no two men are alike, and as none walks according to fixed steps, but only pretends for his own purposes to do so, it is obvious that such states of PERIOD OF PUBLISHED ACCOUNTS. 147 mind can only be productive of disappointment. But there is, perhaps worse still, the selector who prides him- self on his ability to tell at a glance the man he has to deal with. To him, a man who looks him straight in the eyes and contradicts him is a man of power. One who quietly defers to his superior authority is a weak man with no individuality. One who sucks the brains of others, and retails their ideas and knowledge as his own, is an extraordinarily clever fellow. Rough manners and noise are signs of strength : and interest in matters outside the daily routine shows want of concentration of attention. A glib-tongued detractor of others is viewed as a wide- awake gentleman, with a decided turn for studying character ; while he who would scorn to injure a colleague behind his back is only a respectable but unobservant man. An important principle in this connection, but one which is too seldom attended to, is the early training of the young men who enter the services. Nominally, of course, it is recognised ; but the rule is really either a dead letter or its execution is placed in the hands of those who would themselves require rudimentary lessons in reading character. It often happens, too, that a man who might be an excellent selector of agricultural labourers proves but an indifferent judge of the qualities of an embryo bank officer. This is the sort of person who cannot distinguish a poetic from a mechanical genius, and who thinks he has done an excellent and philanthropic piece of work when he sets a Burns to gauge whisky. Agents are greatly to blame in this respect, more especially in past times, when they seldom knew much of banking business, and regarded their connection with it mon; as a convenient adjunct to their principal vocation than as a 148 SCOTTISH BANKING DURING THE duty to be seriously attended to. But even yet the training a young man gets is somewhat capricious and accidental, the staff being allowed to grow up somewhat like Topsy. The round pegs are allowed to roll about indiscriminately until they topple into square holes, and the square pegs have their edges jarred by being rammed into round holes, adjustment being left to the chapter of accidents. Sometimes a clique of underlings, by engineering a pohcy during a series of years, practically monopolise the appointments. This is easier accomphshed than might be supposed, by means of a consistent pohcy of commendation on the one hand, and of detraction on the other. Those who are not members of the choice circle are treated in the manner so forcibly described by Pope. The clique — Damn with faint praise, assent with civil leer, And, without sneering, teach the rest to sneer. Willing to wound, and yet afraid to strike. Just hint a fault, and hesitate dislike. Against such action the management is powerless, because ignorant of its existence. But, all the same, it has potent influences on an establishment's progress. When em- ployes are taken at their own valuation, and advancement becomes a game at grab, business interests are apt to suffer. The Bankers' Institute has, no doubt, been useful in improving matters. But the damage done during the last thirty or forty years of active branch extension cannot be rectified except by lapse of time, even if the best endeavours were being made. Besides, there are many points of a banker's education which cannot be learned outside the office or tested in an examination room. And yet in many PERIOD OF PUBLISHED ACCOUNTS. 149 offices there is no one to teach them either by example or precept. Again, the young men are not accustomed to responsibihty, or to look forward to undertaking it. This is partly owing to, and partly the cause of, a steady deterioration in the tone of the staffs since the last genera- tion. This, of course, will be thought rank heresy, but, like much heresy, it is truth all the same. Indeed, unless a stop be put to the process, the next generation may witness serious results from it. One cause of this deterio- ration, but by no means the only one, is the great drain of the best young banking blood of Scotland to India and the colonies, which was so strongly developed during a prolonged period, which only ended with the recent col- lapse of Australasian banking. It is but right, however, to say that a decided improve- ment has, thanks to the influence of the Bankers' Institute, taken place in regard to reserving the official appointments for men bred in the banks' own services, the neglect of which formerly has been the cause of woes unnumbered, which, however, there was no heavenly goddess to sing as in the days of Homer. A cure is not to be expected yet awhile ; but, if the Institute will continue to hammer away for another generation, the second quarter of the twentieth century may be more favourable to bank officers than the last quarter of the nineteenth has been, and the banks be able to derive some benefit from higher mental qualities than are provided by a knowledge of the three Ks, The Institute has now been long enough at work to permit a fair inquiry as to the utility of its existence. From the outset there have been many douljtcrs. Kven the students themselves often ask ciii bono.' To what purpose is all this labour? The young men look around 150 SCOTTISH BANKING DURING THE theiu. and {ret but little oncouragement from the survey of their surroundings, or from the contemplation of the result of the labours of those who have toiled before them. Thus thcv cithor gravitate intt) the vortex of disingeiiuous- ness at whith they formerly shuddered ; or ambition dies within them, as they sardonically think of the contrast between the dawn of hopes held out to them when their young hearts were fired with high ideals, and the sequel to their labours. And thus they ask, what is the good of the Institute ? We unhesitatingly answer, much every w^ay. Not to speak of the pecuniary encouragements which the banks generously give to successful candidates, we would point out that every man who passes successfully through the Institute is an improved member of society, a man of higher culture than he was before. That of itself is a result which every generous mind must think a rich reward for all the labour undergone. But undoubtedly this would not alone be a sufficient raison cVeti-e for an appurtenance of a practical profit-earning profession. Without entering on the relationship of the Institute of Bankers to the banks themselves, which is not our pre- sent subject, can it be fairly affirmed that it enables the members of the profession to achieve success in life ? We undoubtingly say that it does. The mistake the young men make is when they enter on the course of study under the impression that success in the Institute will secure success in life. This it cannot do, and there IS no reason why it should be expected to do so. Passing examinations is proof of knowledge, but is not a criterion of fitness for ofdce, nor can it counteract the untoward conditions to which we have referred above. The Insti- PERIOD OF PUBLISHED ACCOUNTS. 151 tute does not undertake to fight the battle of hfe for those who seek its aid ; but it trains them for the fight, and places in their hands powerful weapons for attack and defence. The adverse conditions now existing have existed from the earliest times, although in our advanced civilisation and teeming population the struggle may be intensified. The Psalmist saw the wicked in great power, and spreading himself like a green bay tree, but he did not think that Providence was ill-using him thereby. The fact is that every one must fight for his own hand. Some choose ignoble means, which have in many ways great advantages over honourable and open methods. But the world is not so very wicked for all that. It is itself im- posed upon, being really weak, short-sighted, and igno- rant of human character. It seldom knows its best men, unless these either force themselves on its attention, or are shown to it by those wiser than the great majority ; but, on the part of the bank authorities, there is a desire to do justly. In a crowded life struggle, however, the absolute recognition of every man's rights is a practical impossibility. Though success in life is often achieved by ignoble means, such a course is not only contrary to ethical principle and repugnant to generous minds, but is not necessary to secure the desired result. Moreover, busi- ness cannot be conducted on philanthropic principles, and much of the result depends on each man's individual action. As Pistol says, " The world's mine oyster, which I with sword will open ". So we would say to the Insti- tute student, go torth with tlie weapons supplied to you, and with such other honourable accoutrements as are procurable, and attack the world. You will not find it so l.'>'_> SCOTTISH HANKING DURING THE clovtT or strong' but that any active-minded man, of full avera«,'e al)ility and acquirements, can make his mark in it. But in all the fii];ht maintain the highest tone. You are well entitled to use all the advantages you possess ; you have the highest authority for being vi^ise as serpents, but you must also be harmless as doves. As an old Earl of Shaftesbury says, quaintly but forcibly, " I would be virtuous for my own sake, though nobody were to know it, as I would be clean for my own sake, though nobody were to see me ". And do not sit down and fret because a banking career is not for most an El Dorado, but be up and doing, and you will find that it has fair opportunities, and many substantial advantages, the attainment of which will depend, to a very great extent, on the conscientious and loyal observance of your own duties. PEEIOD OF PUBLISHED ACCOUNTS. 158 CHAPTEE XII I. COMPANY AUDITING. " The value of testimony depends as much on the independence of the witness as on his competency." — Anon. One of the prominent accompaniments of the crisis of 1878 was a vehement discussion on the subject of the in- dependent auditing of accounts of banks, and as to the utihty of the system as practised generally by joint-stock companies. What gave point to the discussion was, of course, the disclosures by the liquidators of the City of Glasgow Bank as to the state of the bank's affairs. AVith the single exception of the Bank of Scotland, which was in the habit of getting annually a certificate of " inspection " by two proprietors of stock, the banks in Scotland did not submit their accounts to the examination of any one out- side their own services. In point of fact the question had never arisen, the banks having all been formed prior to the passing of the Companies Acts, when the practice of audit- ing became usual. Moreover, there was a belief that out- side investigation of a bank's current business was incon- sistent with that privacy which is requisite in dealing with customers' financial affairs. Incidentally it may be noticed that this is one of the points where the greater privacy of the system of private banking sliows to advantage as con- trasted with joint-stock banking. For the latter nc!cessi- 1.54 SCOTTISH HANKING DURING THE tales the extension of knowledge of the bank's affairs be- yond those who are exckisively engaged in its work. The practice of auditing is certainly not so applicable to banks as to general joint-stock companies, not only on account of the necessity for privacy, but also from the nature and extent of the transactions themselves. To be effective, an audit would require to be continuous and co- extensive with the bank's business, which, of course, is out of the question. Moreover, the more independent audit- ing is relied on, the less responsibility for the accuracy of the records is laid on directors. They naturally feel that, if the proprietors nominate and remunerate professional inspectors, it were a work of supererogation for them also to go minutely into details. But, whatever imperfections may attach to it, the practice of bank auditing has come to stay. If not so much of a safeguard as thej^ imagine, it is a comfort to shareholders and creditors. As regards joint-stock companies in general, auditing is all-important. Yet it cannot be said that the regulations usually observed for carrying it out are by any means satisfactory. Yet, although the subject is of the utmost importance, its dis- cussion does not appear to excite more than a moderate amount of attention. This is somewhat strange, when it is remembered how vast is the number of persons who are personally interested in the question, and how patently the defects of the system have of late been manifested. But shareholders are in some respects a surprisingly sheeplike body. They will complacently tumble into a ditch if their leader goes in. Their blind confidence in their directors is quite Christian in its character, and worthy of a better cause. One result of the discussion, however, was eminently satisfactory ; no whisper of oppo- PEEIOD OF PUBLISHED ACCOUNTS. 155 sition was heard in answer to the general condemnation of the existing system. Indeed, it is quite apparent that only interested parties can uphold it, so unsatisfactory is it in principle and in its results. Nominally, auditors are appointed by the shareholders, independently of the directors, to act as special guardians of their rights and interests, and to give the public reason- able confidence in the bona fides of the company. But how does this beautiful principle work out in practice '? A share- holder is privately asked by one of the othcials of the company to propose Mr. Protege, and another is asked to second the motion. Both being good-natured, or perhaps, expectant of future good, comply with a request, the de- clinature of which might be remembered disadvantage- ously on a subsequent occasion. The nominee enters upon his office with all the fervour of youth, and with the con- scientious convictions of a Covenanter. Alas ! he soon finds that youthful zeal cools in contact with official ex- perience ; and that convictions are very beautiful to look at, but too costly to wear. In a word, he discovers that he holds office at the will of the board, not of the share- holders. Theoretically, auditors are chosen as disinterested and competent examiners of the companies' affairs. But in point of fact, they are always appointed for very different reasons. It may be safely asserted that not one election in a hundred turns either on the candidates' abiHties or their moral principles. It is either a case of nepotism, or of one good turn deserving another. And tliercaru always shareholders ready to advertise their claims for future re- membrance, by boldly advocating any policy the manage- ment may propose. Theii- doing so may endanger their loCi SCOTTTSTI BANKING DURING THE invostinont ; but as their holdings are probably small, the loss will be easily wiped out by the reversion of some coveted office. These are the persons who, earlier in their career, s;iy " liusli " when some bold shareholder calls in question the proceedings of the board, and generally act as if a position of opposition to the executive were " flat blasphemy ". Strange as it may seem, it is nevertheless unfortunately too true that, except when a company has got avowedly into a quagmire, any one who presumes to raise a warning voice is rigorously put down, not so much by the board's direct action as by the attitude of these bloodsuckers. The success which attends their proceed- ings is due, doubtless, in many cases, to the impolitic, un- prepared, and excited manner in which many worthy shareholders manage to involve themselves, when they are making a probably well-deserved attack. The weaknesses in the case, as presented under such circumstances, are skilfully taken advantage of by the emergency men ; and at the same time estrange those who would otherwise support the dissentient shareholder. But in any case, it usually comes about that the approval of the board's policy is secured, not at the hands of the hond fide shareholders, but of those who are not personally much concerned whether the company sinks or swims. What, then, is to be done to secure that thoroughly independent auditors be appointed ? While we do not ex- pect a cure for the existing evils, until the millennium en- ables the financial leopard to get rid of his spots and lie down with the kid, it would be simple enough to devise legislative methods for improving the conditions under which auditors are elected. Of course, if shareholders are absolutely determined not to attend to their own interests. PERIOD OF PUBLISHED ACCOUNTS. 157 the legislature cannot force them to do so. But it should at least make the conditions as suitable for securing safety as experience may show to be desirable. One excellent provision would be that, during the election of auditors, all directors and officials of the company (the chairman^ perhaps, excepted) should leave the room in which the meeting was being held. Many shareholders would take part in the proceedings under such circumstances, who otherwise would remain interested but silent spectators. Again, a maximum number of years during which it would be legal for an auditor to hold office should be fixed. This change of personnel would, in many cases, be highly bene- ficial. Then the suggestion of names of auditors in the annual report should be forbidden. When a shareholder reads the following clause in the report, " The auditors, Messrs. Gullible Brothers, retire at this time, but being eligible, offer themselves for re-election," he simply regards their reappointment as secured, and thinks no more about the matter. If, however, it were illegal to mention any name in connection with the announcement that the elec- tion of auditors would form part of the business, a very different state of matters might ensue. The office would then be open to competition, without violation of profes- sional etiquette. These provisions would not absolutely prevent unsatisfactory auditing, but they would tend very materially towards the improvement of the conditions under which auditing is at present conducted. l.')S SCOTTISH BANKING DURING THE CHAPTEK XIV. THE DEATH OF COMPANIES.' " Man makes a Death, Which Nature never made." — Young. The term " company " includes so many varieties of as- sociations of human beings that, while the predicate of our title might doubtless be more or less aptly applied to them all, it is expedient to define its use on the present occasion, so as to put suitable bounds to our disquisition. In a paper devoted to the interests of banking men, the phase which falls most naturally to be considered is that of profit-earning joint-stock corporations ; and it is as relative to such companies that the following remarks are intended. Death, the termination of manifest sentient existence, is an absolute law of the animal world ; and decay is pro- bably predominant in all material creation. But corpora- tions are not subject to the conditions either of animal life or of inanimate creations, being under purely abstract con- ditions, and having existence and personality only as legal fictions. And yet we find that, notwithstanding their inherent right, both as regards their theoric and legal condi- tions, to perpetual succession (not to speak of a common * Published in 1895. PERIOD OF PUBLISHED ACCOUNTS. 159 seal), they manifest a decided moribund tendency. We are not aware that the vital statistics of companies have as yet been systematically investigated, but there seems to be no reason to doubt that profit-earning joint-stock companies have not yet exhibited greater degrees of longevity than the animal creation. Corporations other than those of the profit-earning variety do indeed exceed in life-record any knov^n instances of the duration of animal life ; but those of which we are treating can hardly do more than rival the elephant or the parrot, the alligator or the Aldabra tortoise, while no corporation of any kind can show in- stances of longevity equal to those exhibited by the vegetable kingdom. It may be said that the mortality of companies is merely incidental to their relationship to mortal humanity — that all man's material creations wear out by use, while his immaterial suffer from the evils adherent to his own conditions. But this is only arguing in a circle — at best it is but a truism, and does not help us to solve the pro- blem. Why do companies (like the flowers) die ? The Bank of England and the Bank of Scotland are probably the oldest business corporations extant, and they have just completed two centuries of existence. But had they been founded by AVilliam the Conqueror and Malcolm Canmore, their continued existence would not have been abnormal, however surprising it might have been from its singularity. We may be sure their perpetual succession would have had as little perpetuity as their common seals, which would undoubtedly have been used towards securing the perpetual succession of some royal or noble thief. The banks would either have been robbed and murdered, or they would have committed suicide as is so coiiunou with 160 SCOTTISH BANKING DURING THE companies still. But this would all have been incidental to the circumstances in which they were placed — not in- volved in the principle of corporate existence which con- templates a continuance as perpetual as the precession of the equinoxes. It is a somewhat extraordinary fact that, notwithstand- ing; this unconditional claim to immortality, the history of companies should exhibit an almost identical experience with that of mortal humanity, from and even prior to birth onwards to the grave. Some companies are still-born, and many are quick-born which should never have seen the light of day. Some are diseased from their conception ; while some, born healthily and respectably, fall away and become reprobates. Others grow to full age only to become the victims of misfortune. Kobbery and mur- der, often by professing friends, and despairing suicide terminate the career of many ; while, were it not that " cor- porations have neither souls to be saved nor bodies to be kicked," the iniquities, cruelties, and selfishness which characterise the proceedings of many would justify their condign punishment both here and hereafter. Some are rash, some are extravagant, some overbold, and some too timid. It is, however, pleasing to be able to reflect that, as with humanity, so with companies ; a few live respect- able and useful lives in credit and renown. It may even be that, as the vital statistics of mankind show a tendency towards lengthened periods of existence, so companies may in future times improve on their past record. There is another aspect in which corporate existence bears a striking resemblance to the lives of mankind. As each human being has a hfe peculiarly his own, into which no one enters, or can enter, an unknown innocence or an PEEIOD OF PUBLISHED ACCOUNTS. 161 unknown guilt, with various degrees of combination of both, so with companies, the inner life differs materially from that which the annual chapter of autobiography de- tails. This is so not only with moribund companies, but even with those which are in the most robust corporate health. If one of those clever fellows, of whom there are so many now-a-days, would discover financial Rontgen rays for application to corporate bodies, the resulting anatomi- cal study would be highly interesting and instructive to shareholders, and stock exchange prices would rule lower. That the so-called great Napoleon, notwithstanding the outstanding characteristics of his career, had many contemptible weaknesses and meannesses is made evident by the narrative of his great friend and worshipper, the Duchesse d'Abrantes. But he had one quality, among those which made him distinguished, without which all would have gone for little. He was pre-eminently a reader of character ; he could readily tell who were the most suitable men for the various appointments he had to make ; he could read the mind, the face, the body ; and, unscrupulous as he was himself, he could recognise and appreciate the higher qualities in others, or detect the deceit or selfishness which lurked behind their specious phrases. This power, however, is comparatively rare — many persons think they have it, but conceit, a quality incompatible with greatness, strangles it in its birth ; or self-sufficiency prevents that cultivation of the faculty which is necessary to its perfecting, or selfishness makes indifferent to it. To this want is due in many cases the death of companies whose careers might liavo been in- definitely prolonged. The injudicious appointments of one generation continue far into tlie next ; and tlie 11 \(V2 SCOTTISH BANKING DURING THE damajijo done, even when recognised, will hardly be remedied before its close. Thus a business which, it may be, has been laboriously built up through generations of careful management, may, in a few years, be sent roUing on the down grade, whose bottom is death. It is a great misfortune that, in the business world, the higher virtues handicap their exponents as com- petitors in the battle of life. Selfishness, that one great sin of humanity which is the parent of all the others, though allied with ignorance, is more potent than al- truism combined with knowledge. The world, like the Kingdom of Heaven, is taken by storm ; and the man who pushes his neighbour aside, whether it be by the knock-down direct, the secret detraction, or the gentle elbowing process, is the one that his fellows crown with honour, riches and power. Thus it too often happens that the fate of a companj'- lies in the hands of men whose ideas of duty recognise it solely as a means to their aggrandisement and glorification. It may be feared that, less and less, does management identify its own and a company's interests. Kot, perhaps, that this is consciously done to a greater extent than formerly, but, under more realistic and less pretentious conditions, men involuntarily combined the personal and the official roles. Thus the most is made of the present, the future being left to take care of itself ; the reserve of strength which might secure a green old age is drawn on to make a present display ; and present prosperity, which, stored up, would bid defiance to the adversity which is sure to come, is availed of for present gratification. People cannot both eat their cake and have it. In this, not utihtarian, but selfish age people prefer to eat it. PERIOD OF PUBLISHED ACCOUNTS. 163 One of the most common causes which lead to the death of companies is the neglect of the teaching of ex- perience. We do not refer to personal experience, that still enforces itself on the pupil, as it has proverbially done since time immemorial. Experientia docet stultos. But the study of the past, the profiting by the experience of those who have trodden the way of life before us, is neglected in this self-sufficient age. Modern conceit acknowledges no teacher ; it is sublime in its self-reliance, yet it is Brummagem ware to the pride of the past, which it would fain eclipse. The modern is all-knowing in his self-esteem, thinking that his cursory reading has taught him all he can learn from the past ; yet, as we have been taught from infancy, there is nothing new under the sun. This is as true in regard to companies as of human beings. Details change, the outward manifestations and conditions alter from time to time, but the essential principles are ever the same. There is uniformity in nature, both in the comparison of different ages of the world's history, and in the comparison of different departments of life of the same age. Thus the company that would see long days must, hke the men whose creation it is, live soberly in self-restraint, recognising that every effort of over- exertion or self-indulgence is simply a draft against the balance of its vitality ; while prudent economy of energy secures a provision against the contingencies of the future. APPENDIX A. Average Rates of Discount charged for Bills on London at three months' cur- rency ; of Interest charged on Cash Accounts ; and of Interest allowed on Deposit Receipts by the banks in Scotland, from 1865-1896, inclusive. BUI Rate. Cash Account Bate. Deposit Receipt Rate. Year. Annual. Decade. Annual. Decade. Annual. Decade. Per Cent. Per Cent. Per Cent. Per Cent. Per Cent. Per Cent. 1864 - - - 7-35 7-27 4-10 1865 - - - 4-76 606 5-52 6-40 3-57 3-84(2 yrs.). 1866 - - - 6-69 7-07 4-33 1867 - - - 305 4-82 2-05 1868 - - - 3 4-50 2 1869 - - - 3-30 4-64 2-26 1870 - - - 3-22 4-64 2-20 1871 - - - 3-29 4-71 2-30 1872 - - - 4-08 5-24 2-97 1873 - - - 4-78 5-73 3-53 1874 - - - 3-74 5-02 2-70 1875 - - - 3-41 3-86 4-82 5-12 2-40 2-67 1876 - - - 3-30 4-69 2-30 1877 - - - 3-34 4-72 2-35 1878 - - - 3-97 5-19 2-86 1879 - - - 3-12 4-72 3-46 1880 - - - 3 4-76 2 1881 - - - 3-63 5-08 2-50 1882 - - - 4-14 5-51 2-87 1883 - - - 3-58 5-06 2-54 1884 - - - 3-36 4-90 2-30 1885 - - - 3-38 3-48 4-83 4-95 2-27 2-54 1886 - - - 3-37 4-85 1-97 1887 - - - 3-63 4-93 2-20 1888 - - - 3-58 5-03 2-26 1889 - - - 3-69 5-13 2-20 1890 - - - 4-57 5-61 2-91 1891 - - - 3-48 4-96 1-93 1892 - - - 3-04 4-73 1-53 1893 - - - 3-34 4-88 1-76 1894 - - - 3 4-54 1-50 1895 - - - 2-53 3-42 4-50 4-92 1-04 1-93 1896 - - - 2-99 4 -03 1-33 1897 - - - 2-96 to 9th Sep. 4-70 1-31 Gen. Avergs. 3-70 5-05 2-41 Note. — The average D.R. rate for the ten years 1856-65 was 2"78 per cent. ; but, from 1858-60, the Clydesdale Bank allowed at first ^ per cent, and latterly \ per cent, more, on deposits at one month's notice. lf)G APPENDICES. to ♦— 1 CO o e ^ c-i s O p^ cc PL, D r/1 <1 QQ 1— ( OJ t~ eo a 00 •^ ■* Q OJ to ■* o c- ■qH O I- t- O tH ■* ■^ lO lO 0_ CO CO oo" lo" cf CO rH CO ■^ t- iH O 05 « CO 00 CO ^ CO .-1 (M o CI OJ O .-1 CO 'i' rH o t- t- CO rH (M CO ■* t- ■<*i >o CO rH 1-1 •? 00 cc o" 1 CO O Ol CJ lg?28 1 1 1 -* CD O lO ' ' ' can ^o ' la 00 (» t-CO t-CO C-1 00 CO lO .-1 =« 00 -^ CO o> tH t- O lO of -l 00 CO -^ lO O CO O Ci >0 t~ lO o Tj<_ CO 00 rH cT »c 00 of »0 O CO t- d CO 00 >— I -^ --»■ — - o ■^ CO CO ^^C5 "—I •* '-"- i-ilOC-l— a OOtMCO^iir CE'HtMCOO, •^rJ-OfSo QOOi-HCC^ iw'^,^"*,'^' co'co'oo" o"S o -"if t-^OTjT to o o ^"-^'m -^' Tj(.-iC0^i-^^t^C5t->O Cm A^ . »o c~ lO o cocn^PhPQcoo^ o o lCO-^'-IC0C-O-*C0CC'O'>1C0C»M':J>.a ji S o «s o*^a >>>i: o o j:? d =3 .- '^ a c3' c3 |J] « a c " o ^ CO ^ a 25_omBPo = 3^ a a a o „.a 6D tuO ^ '-3 a ? s as 5 .2 1^ m "S 7 APPENDIX C. THE BANK OF ENGLAND AND SILVER. As these sheets are preparing for the press, comes the announce- ment of the Bank of England's surrender to the Silverites. The seriousness of this action cannot readily be exaggerated. The old lady of Threadneedle Street has often been abused for tardiness in taking up new ideas. But, partly on account of her rigid adherence to established principles, she has hitherto been regarded with undoubting confidence, not only as regards inherent strength, but also as the guardian of that foundation of British credit, the ultimate reserve of the embodiment of the recognised standard of value, gold. No financial heresies have previously found a home in the bank parlour ; and the British public and bankers have been content to let the bimetallists rage and adjust, and readjust, their hopless schemes for joining the two metals in an unnatural alliance, safe in the conviction that they could always get gold, or gold value, when they required it. They have been rudely awakened from their dream of safety, and find that there is danger of the gold reserve being debased with an admixture of one-fifth of silver. Fortunately the Bank of England does not now occupy the commanding position it once did, so that when it essays to use its still giant strength in imitating Samson's final feat, the joint-stock banks are potent enough to restrain it. The resolute action of the London Clearing bankers in opposing the scheme has been received with a sense of relief. The bank is, no doubt, empowered to act as it proposes, but it must begin to realise that it has a host to reckon with. While it may thus be inferred that there is little actual danger of the proposal being carried out, the action of the bank has been of a very unfortunate character. That it has put heart of grace into the Silverites is the hiast ])a,rl of tlu; damage I (is ArrENDICES. ilmie. The instillation of doubt into men's minds as to the nlisoluto permanence of our j^'old standard is in itself a calamity which only time, and steady adherence to sound money doctrines, will counteract. Fortunately, general banking opinion in the United Kingdom is sound on the question, and, as we have seen, that opinion is capable of enforcing itself. APPENDICES. 169 > .20 ^ u-bo HX-*JriTj(jM; ^ s t- lO lO O lO O t~ ^ as lO rt- 5) o CO t- CO o 'il CM >-l -* 00 CO OJ ■* ■^ •* (M (M CO CM i-l ■^ o (2 cb ^ 1 1 1 '=' s O O O (M t- » 3 ft 1 ^ o "* ^ l-( T-l cS .1^ O si o 1 1 o o 1 1 CO -* C<1 fn-S, »o 1 1 ■* o 1 1 rH •-H s ■=*< rH -^ n 'S. ce o ^ -471 .X' o o o O O O O t- -^ cq ^ o o o (M O i-H i-H (^ <4i T-1 rH tH r*l o o O o o O O lO O Ol lO o O o o lO lO CO 3 O O O O CO i V y >. ' c5 ?.< Sh ' < c .s .^3 4H -^3 ^ o a (D a ai o £? '^ o 5 -a o a c3 o ^^Hu 02 c oS Is P^|3< tt.^B< K o >-. (-« ^ o o 9 o o o 5^ do ^ TJ 1) i a d d d d gow an nbui'gh asgow erdeen Do. rerness _ a O r^ Q Q 5 i^55 a t H ^ hH "o • -« ■ ro" ' - . ' ri3 T3 K- 1 ^ '^3 >^ O c eg J , l,1ll|, a -2 3 ^ ' o ' o o 8 'a;3ji f5 a o a CO ^ .^-^"^"^ . o CO o o a mm. a S5 7^ a o rcial ^ mited 1 Ban n Bank ed sdale Ba County Gotland a Bank ed a a m ,a Comme land, Li Nationa Limited O O Is o 05 CO Unio Limit Clyde n and Ch of S ;donia: Limit o QJ o Si .£3 Si jA Si Si o P li s H H H H H HHI^O 11* INDEX. Acceptances, 19, 34, 118. Advances, 22, 25, 36, 119-23. Agents, 106, 128, 137. Aikman, A., 53. Anderson, G., 63. Auditing, 153. Balance-sheets, 15-28. Bank buildings, 26-28, 38. — customers, 107. — offices, 30. _ officers, 104, 112. _ of England, 12, 101, 167. _ of ]Mona, 67. _ of Scotland, 46, 47. — profits, 6, 42. — reports, vii., 2, 46-67. Banker, old Scottish, 103-4. Bankers' exchange, 117. Banking, viii., 1, 8. — local, 106. — study of, 130, 135. Banks established, 2, 15. — experience, 3, 8. — governmental tone, 108. relative positions, 41, 77, — Scottish in England, 13. Baring Bros. & Co., 12. Blyth, R., 57. Branches, 29, 39, 105, 125. — and profits, 71-4. British Linen Co., 2, 50-1. Brodie, P., 51. Caledonian Bank, G4-5. Canvassing, 132. Capital, 6, 19-23, 35, 112, 169. Cash accounts, 120, 126. Character, knowledge of, 161. City of Glasgow Bank, 11, 66-7, Clearing house, 124. Clydesdale Bank, 58-9. Cochrane, T., 61. Collie, A., & Co., 12. Commercial P>ank of Scotland, Companies, 158. Credit, 85, 92. 169. 82. 52-3. Crises, 11, 12. Cunningham, J. M., 59. Currency, 98. Davidson, D., 47. Deposits, 15, 16, 33, 76, 113. Discount rates, 165. Dividends, 46-66, 76. Drafts, 19, 34, 118. Duncan, W. J., 55. EsSARS, Pierre des, 111. Experience, viii., 32, 46-67, 168. FiDDES, E., 63. Findlater, J., 61. Fleming, J. S., 49. Forgeries, 47. Fran(;ois, G., v. Future, the, 80, 109. Gairdner, C, 57, 96. Glasgow banks, 2. Glasgow Herald, vii. Gold reserve, 92-102, 167. — scarcity of, 97. Heritable property, 26-8, 38, 123. Hotson, H. A., 51. Huie, D. li. W.,49. Institute of Bankers in Scotland, viii., 148. Interest rates, 9, 165. Investment companies, 85. Littlejoiin, W., 61. London and Westminster Bank, 12, 84. Losses, 42, 78, 82, 84. Lumsdcn, R., 63. Macmillan, E. H., 65. Mackenzie, A. K., 53. National Bank of Scotland, 54-5. North of Scotland Bank, 62-3. 172 INDEX. Note Issues, 16, 17, 34, 86, 114, 166. — economical, 95, 97. — profit on, 89, 90. public value, 90. — State, 88. Peploe, R. L., 53. Population, 6, 8. Prices, 99. Profits, 43, 44, 46-80. Proprietors' funds, 23, 75. Readman, G., 59. Real estate, 26-8, 38, 123. Reserved funds, 21, 23, 35, 83, 113. Reserves, 24, 25, 37. Robbery, 47. Robertson, James, 57. — Laurence, 42, 49. Rorie, G. L., 61. Royal Bank of Scotland, 42, 48-9. Salmond, R., 67. Scotsvinn, 86. Selfishness, 162. Shipping, 7. Silver, 167. Smith, T. H., 55. Stocks (prices), 30, 40, 169. Stronach, A., 67. — R. S., 67. Success, 42. Symc, J., 51. Town and County Bank, 60-1. Trade, 6, 7. Union Bank of Scotland, 12, 66-7. Waterston, C, 65. Wenley, J. A., 47. Western Bank of Scotland, 1. Westland, James, 63. Wilson, D., 59. ABERDEEN UNIVERSITY PRESS. UNIVERSITY OF CALIFORNIA AT LOS ANGELES THE UNIVERSITY LIBRARY This book is DUE on the last date stamped below o!90< R£C D im.?! APR 1 9 \m Form L-R aotn-l.'42(%519> UNIVERSITY OF CALIFORNIA AT LOS ANGELES LIBRARY 3 1158 01212 8426 UC SOUTHERN REGIONAL LIBRARY FACILITY AA 001 108 689 9 HG 2999 S4K4S