Bank of Scotland (1695- )

Early days

Bank of Scotland was founded by an Act of the Scottish Parliament on 17th July 1695, making it the first bank to be established in Scotland, and one of the first in the UK.

The Bank was set up primarily to help develop Scotland's trade, mainly with England and the Low Countries.  It began business in February 1696 with a working capital of £120,000 Scots (£10,000 Sterling).  The 172 original shareholders (including 36 based in London) came mainly from Scotland's political and merchant elite.  What they required was a banking system which would offer long-term credit and security for merchants and landowners alike.

 

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Matters of note

In 1696, Bank of Scotland became the first bank in Europe to successfully issue paper currency - an invaluable service given the unreliability of Scots coinage at that time.  These first notes were issued in denominations of  £5, £10, £50 and £100 - the first £1 note didn't appear until 1704.  The Bank's right to issue notes has been maintained to the present day.

There have been threats to this right at various times in the Bank's history.  In 1826, for example, there was outrage in Scotland at the London Parliament's attempt to prevent the issue of notes under £5.  Sir Walter Scott wrote a series of thinly-disguised protest letters to the Edinburgh Weekly Journal under the pen-name Malachi Malagrowther.  These letters provoked such a sensation that the government relented and allowed Scottish banks to continue issuing £1 notes.  To this day, Scott's portrait appears on Bank of Scotland notes.

 

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Testing times

The early years of the Bank's history were fairly turbulent.

Under the terms of its founding Act, the Bank had been granted a banking monopoly in Scotland for 21 years.  After the monopoly expired, a rival bank - the Royal Bank of Scotland - was founded in 1727 by Royal Charter.  There followed a generation of intense competition as the two banks tried to drive each other out of business.

During the Jacobite Rebellion of 1745, the Bank was forced to close its doors when Bonnie Prince Charlie's army occupied the city of Edinburgh.  All the Bank's papers and valuables were transferred to Edinburgh Castle for safe-keeping, until the rebel army left several weeks later.

 

 

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Branching out

Early attempts by the Bank to establish a branch network were unsuccessful and it was not until 1774 that the first branches were opened in Dumfries and Kelso.  By 1795 there were 27 branches: this had risen to 43 branches by 1860 and to 265 branches by 1939.  The Bank's first permanent office in London opened in 1867.

During the latter half of the 18th and early 19th centuries there were significant changes to Scotland's banking system.  The focus of economic development shifted to Glasgow and the west.  One development was the rise of large-scale joint stock banks with significant numbers of shareholders.  These provided much more serious competition for Bank of Scotland, particularly as most of the newcomers also had large branch networks.  The increase in the number of banks - some of which pursued reckless lending policies - led to occasional failure.

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Disastrous failures

In 1857 the Western Bank collapsed.  Bank of Scotland, along with the other major Scottish banks, stepped in to maintain confidence in the Scottish banking system and ensured that holders of the Bank's notes were paid.

In 1878 the City of Glasgow Bank also collapsed in spectacular fashion, ruining all but 254 of its 1,819 shareholders.  The disaster shifted the focus of finance back to the more conservative practices of the Edinburgh banking community.

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New century, new challenges

The early years of the 20th century brought new business to the Bank.  Companies such as British Aluminium and Barr and Stroud (manufacturers of optical range finders for the British Navy) sought sophisticated finance from the Bank, on a scale previously unknown.

The outbreak of war meant the Bank had to refocus its policies on national need. The inter-war years proved difficult too, and it was only after the Second World War that the economic climate improved.  The 1950s sparked a series of mergers and acquisitions right across the financial sector.  Bank of Scotland began this phase of its development by merging with the Glasgow based Union Bank of Scotland in 1955. Three years later it expanded into consumer credit with the acquisition of North West Securities (later Capital Bank).  Then in 1971, it merged with the British Linen Bank.

The ‘50s also heralded the age of computerisation.  This was to revolutionise the face of British banking and again Bank of Scotland was at the forefront.  In 1959 it became the first UK bank to install a computer for processing its accounts centrally.  Then in 1986 the Bank again led the way with the introduction of HOBS (Home and Office Banking Services) - an early application of internet technology.  This service enabled customers to access their accounts directly on a television screen, via a Prestel telephone network.

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Overseas development and subsequent mergers

Bank of Scotland was also swift to appreciate the massive potential of North Sea Oil.  By the early 1970s it had set up its own specialist Oil Division, financed exploration of the Forties Field and played a leading role in establishing the International Oil and Energy Bank.  In 1975 Bank of Scotland opened its first overseas office in Houston, Texas.  Branches followed in other US states; Moscow; Hong Kong; and Singapore. Inroads were made subsequently into Australasia, with the purchase of Countrywide in New Zealand in 1987 and the Bank of Western Australia (BankWest) in 1995.

Then in 2001 Bank of Scotland merged with the Halifax  to form HBOS plc, beginning a whole new chapter in its history.

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Further information

• 'Bank of Scotland 1695-1995: a very singular institution' by Alan Cameron  (Mainstream, 1995)
• 'Bank of Scotland: a history 1695-1995' by Richard Saville (Edinburgh University Press, 1996)
• 'The Bank of Scotland 1695-1945' by Charles Malcolm (R. & R. Clark Ltd, [1945]).
• An extensive archive of material relating to Bank of Scotland is maintained by HBOS Group Archives.
• Records and artefacts charting the history of Bank of Scotland are also on display in the Museum on the Mound  in our corporate headquarters.

To return to the Bank of Scotland family tree click here. 
To return to Corporate History click here. 

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