SCOTTISH BANKING AND THE FAILURE OF THE WESTERN BANK OF SCOTLAND IN 1857

Abstract

This paper presents a business history of the Western Bank of Scotland (hereafter, cited as the WBS) during the period 1832 to 1857. The paper also attempts to compare the management of the WBS with that of other Scottish banks.
A.W. Kerr attributed the cause of the failure to the WBS's manager's mismanagement leaving the bank with a shortage of reserves, in his “History of Banking in Scotland.” On the contrary, R.H. Campbell favoured the directors and manager and ascribed the failure to the hostile behaviour of the Edinburgh banks.
Five Edinburgh Chartered banks (The Bank of Scotland, The Royal Bank of Scotland, The British Linen Co., The National Bank of Scotland, The Commercial Bank of Scotland) played a great part in Scotland. These banks still had a large amount of Government Securities (Consol or Exchequer Bill) which accounted for 1/4 to 1/3 of the total assets of the bank. In consequence, the Edinburgh banks had a very stable constitution making them apt to hesitate to advance money into the industry field.
However in Glasgow, one of the centre of Anglo-american trade, many merchants and manufactures desired to establish a bank, financed trades. Under such a circumstances, the WBS was set up in 1832.
It is obvious that the comparatively high demand for money in Glasgow accelerated the promotion of the WBS. However the WBS made the mistake of adopting a lending policy which was too financed a considerable amount of the railway investment in U.S.A. by means of letters of credit through an agency in New York, James Lee & Co.