Two centuries of Scottish banking
A definitive history of Scottish banking
SG Checkland's magisterial history chronicles nearly three centuries of Scottish financial enterprise, from the founding of the Bank of Scotland through two world wars to the banking revolution of the early 1970s. Drawing on unprecedented access to private archives, minute books and balance sheets, he tells the story of more than 100 enterprises - the triumphs and disasters, the cautious Edinburgh establishment and the ambitious Glasgow challengers, the visionary general managers and the occasional scoundrels.
- Format
- Paperback
- Pages
- 716
- Published
- March 2026
I The Aggregate Picture System scale, asset mix & capitalization
The System
Aggregate balance sheet of all Scottish banks, 1744-1972. Assets above, liabilities & equity below.
Two and a half centuries on a single page. Above the zero line: how Scottish banks deployed capital — advances to industry, investments in securities, and the liquidity buffer. Below it: how they funded themselves — note issue giving way to deposits, with capital becoming a thinner sliver as leverage grew. The widening of the bands tracks the system's seven-thousand-fold nominal expansion through industrialisation, two world wars, and the post-war settlement.
Asset Composition
Advances, investments, and liquid assets as a share of deposits, 1865-1972.
What did Scottish banks actually do with deposits? In 1865 advances ran at 95 % of deposits — a near-perfect classical loan book. Two world wars turned that on its head: investments (mostly UK government securities) ballooned past 70 % during 1942-46, while advances collapsed below 20 %. The post-war "investment overhang" took a generation to unwind, and only by the 1970s did advances reclaim their pre-1914 share — a vivid case study in how war finance permanently rewires a banking system's balance sheet.
The Long Decline of Capital Ratios
Capital + reserves as a percentage of total liabilities & equity, 1744-1972.
Across two and a quarter centuries the equity cushion of the Scottish system fell from 54 % of the balance sheet to roughly 7 %. Each generation taught itself to operate on thinner capital, backstopped first by partners' unlimited liability, then by reputation and inter-bank coordination, and ultimately — implicitly — by the Bank of England's lender-of-last-resort. Modern Basel debates often treat declining capital as a recent vice; the Scottish data show it is a structural, multi-century trend.
II Profitability, Returns & Risk Margins, ROE, capital adequacy & crisis impact
System Profitability
Profit before and after tax as a percentage of deposits, 1865-1972.
Profit before tax fell from roughly 2 % of deposits in the 1860s to under 0.8 % by the 1970s — a slow, secular margin compression as competition tightened, deposit-taking became commoditised, and post-war administered interest rates capped what banks could earn. The dashed lines mark the system's four largest shocks; profitability dipped, but it was the trend, not the cycle, that ultimately reshaped the industry.
Return on Equity
Profit before tax divided by capital + reserves, 1865-1972.
Profitability was falling as a share of deposits — yet return on equity stayed broadly stable, eventually rising into double digits in the late 1960s. The arithmetic is simple: as the capital base shrank (chart above), the same pound of profit served a smaller equity slice, propping up shareholder returns. ROE is a flattering metric in an era of rising leverage.
Capital Adequacy — A Basel Lens
Capital + reserves as a percentage of total public liabilities, with indicative modern reference lines.
The same long decline, viewed through a Basel III lens. By the late 1960s the Scottish system was running on capital + reserves of around 6 % of public liabilities — comfortably above today's 3 % leverage minimum but below the 8 % Tier-1 reference. Strikingly, the system never suffered another systemic failure after 1878, suggesting that for an oligopoly with strong inter-bank discipline, formal capital ratios were not the only thing keeping the lights on.
Crisis Impact
Asset ratios around the two world wars: advances, investments, and liquid assets, all as a percentage of deposits.
How crises rearranged the balance sheet. Both world wars produced the same pattern: investments surged as banks were corralled into government debt, advances collapsed, and liquid assets stayed elevated. Each war ratcheted the asset mix — the post-1918 advances ratio never returned to its pre-1914 level, and a similar shift followed 1945. War finance is sticky.
III Banks & Geography Rankings, branch density & Scotland's GB share
Bank Rankings
Competitive position of the major Scottish banks, 1865-1972.
Eight banks compete for primacy across a century of change. The Bank of Scotland and Royal Bank — public banks chartered in 1695 and 1727 — were rarely outright leaders by the 1860s; the joint-stock challengers (Commercial, National, Union) had taken the front rank. Watch the City of Glasgow line vanish in 1878 — the system's most catastrophic failure — and notice how mergers and exits gradually thin the field from eight names to five.
Branch Density — Scotland vs England
Bank offices per thousand population, at four observation points, 1886-1972.
Scottish banks were pioneers of branch banking, and the contrast with England is stark: 0.25 offices per thousand people in 1886 versus 0.06 in England — a four-fold density advantage. That distribution network was the physical infrastructure of the cash-credit system, the relationship-banking that drew Smithian economists' admiration. By 1972 England had nearly caught up, but Scotland still led.