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British Banking History Society

Bank of Scotland

The Bank of Scotland was founded by An Act of the Parliament of Scotland passed on 17 July 1695, and celebrated its tercentenary in 1995. Its initial nominal capital was set at 1.2 million Scots, (100,000 sterling) and began trading on a paid up capital of just ten per cent of that figure. The proprietors (as the Bank's shareholders are called) were granted limited liability, and to make doubly certain that the Bank would remain Scottish, the last clause of the founding Act provided that any foreigner who took a holidng worth 1,000 Scots could claim Scottish nationality. The latter clause was only eliminated in the Bank of Scotland (1920) Act. For these reasons the Bank still trades under its founding legal title as "The Governor and Company of the Bank of Scotland", and has never therefore been required to register as a limited company in either Scotland or England. Unlike its older sister, the Bank of England, it was never a Government bank, but was set up on joint-stock principles to make a business of banking. Its prime purpose was to fund the trade of Scots merchants, between the east coast of Scotland, the Baltic, the Netherlands and London, where merchants' Bills of Exchange were discounted. It is for this reason that the Bank's first paper currency, issued in 1695, was for values of 5, 10, 20, 50 and 100 sterling; that of the first 172 shareholders, 38 were London-based and that London was the first branch.

It is a measure of Scotland's poverty in 1695 that the Bank's first commercial investment was in Scotland's first paper mill, which was vital to banknote production. In the early days the note production provided a sort of annual picnic for the Directors. They went to Yester (now Gifford, East Lothian) with paper and watermark moulds, printing press and plates, and stayed until the whole process of manufacture was completed. Surplus paper was destroyed, and the notes made up into a series of books, with counterfoils, which were then stored until needed. When the notes were 'taken into cash', the phrase still used for putting notes into circulation, they were hand-numbered and signed, and these were entered up into the note ledger. The Bank therefore kept a close watch on the notes in circulation, which experience taught should never exceed a fixed portion of the paid-up capital. There were two forms of note:-

  1. The note made payable To........ or bearer, which was transferable, and is therefore the direct ancestor of the modern banknote
  2. The note made payable to a named individual, sometimes at a specified time or place. This was the ancestor of the Bill of Exchange and cheque.
From the beginning paper currency was an important part of the Bank's daily business, and it is well-known the right of note issue has been maintained up to the present day. The Sir Walter Scott series first issued in 1971, is in the process of being replaced by a completely new design type, whose denominations match exactly those of the first issue.

After the Union of Parliaments in 1707, the Bank supervised the re-minting of Scottish coinage into Sterling, but thereafter had even less responsiblity for handling Government revenues. Early attempts at building a branch network expired, and in 1727 the Royal Bank of Scotland was founded as a direct competitor. For the next generation, the two banks attempted to drive each other out of business, but with the rapid growth of the Scottish economy after 1750, and the shift in Scotland's economic focus to Glasgow and the west, the Edinburgh banks faced new competitors eager to meet the needs of industry and commerce.

From the 1770's the Bank again began to develop a branch network in Scotland, reaching 18 branches in 1793 to some 480 in 1991. During the 1970s the Bank began to expand further of Scotland, and in the 1980's established some eleven regional branches in England. Historically, the pattern of the Bank's business has reflected closely the changing fortunes of the Scottish economy, and it has always operated in a competitive environment.

Bank of Scotland as it stands is the result of a series of takeovers and amalgamations. Since 1945 there have been two; The Union Bank of Scotland in 1955 and in 1971 the British Linen Bank, a wholly-owned subsidiary of Barclays Bank, which took a 34 per cent shareholding in teh Group. This was sold to Standard Life Assurance Company ni 1985. The 1970s and 1980s saw rapid expansation of the Bank's activities. North-Sea oil financing led to the establishment of branches in Russia and Texas, and a full International Division. Expanstion into the English market was achieved by using electronic technology rather than by establishing a retail branch network.

To celebrate the Bank's Tercentenary, two histories of the bank were published, an illustrated version and a full-scale academic study. A tapestry of the Quaichs have been commissioned, a Tercentenary rose, and there were a number of banquets in the Bank's main centres.

Alan Cameron, Bank Archivist

Click here for pictures of Bank of Scotland cheques.

Copyright 2010 BBHS