Bank of Scotland

(EST. 1695)

Early Days

Bank of Scotland was founded by an Act of the Scottish Parliament on 17th July 1695. It is Scotland's first and oldest bank, and post-dates the Bank of England by just one year.

The Bank was set up primarily to 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) were largely from Scotland's political and mercantile elite. They hoped to create a stable banking system, which would offer long-term credit and security for merchants and landowners alike.

Bank of Scotland coat of arms, granted March 1701
Bank of Scotland coat of arms, granted March 1701.

Matters of Note

In 1696, Bank of Scotland became the first commercial bank in Europe to successfully issue paper currency. This was 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 did not appear until 1704.

The Bank's note issue continues to this day. However, there have been various threats to it over the years. In 1826, for example, there was outrage in Scotland at the London Parliament's attempt to outlaw banknotes for 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. The Scottish £1 note was saved. For this reason, Scott's portrait appears on Bank of Scotland notes today.

A selection of Bank of Scotland notes, including the oldest surviving Scottish banknote (1716) and the current £20 (2007)
A selection of Bank of Scotland notes, including the oldest
surviving Scottish banknote (1716) and the current £20 (2007).

Testing Times

Bank of Scotland's early years were turbulent ones.

Under the terms of its founding Act, the Bank had been granted a banking monopoly in Scotland for 21 years. After this expired, a new bank was founded by royal charter, in 1727 - the Royal Bank of Scotland. There followed a generation of intense rivalry as the two banks competed to drive the other out of business.

During the Jacobite Rebellion of 1745, Bank of Scotland 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. There they remained for two months, until the rebel army finally departed.

Bonnie Prince Charlie by Cosmo Alexander, 1752 (The Drambuie Collection)
Bonnie Prince Charlie by Cosmo Alexander, 1752 (The Drambuie Collection).

Branching Out

Early attempts to establish a branch network proved unsuccessful. It was not until 1774 that the first branches were opened, in Dumfries and Kelso. Twenty-one years later, the Bank had 27 branches. This had risen to 43 by 1860, and 265 by 1939. Bank of Scotland opened its first permanent office in London in 1867.

During the latter half of the 18th and the early 19th centuries, significant changes to Scotland's banking system occurred. The focus of economic development shifted away from Edinburgh, to Glasgow and the West. Large-scale joint-stock banks also sprang up. These presented serious competition for Bank of Scotland, particularly as most of the newcomers had large branch networks. But the increased numbers of banks, some of which pursued reckless lending policies, led to occasional failure...

Bank of Scotland London office: architectural plan by W. W. Gwyther, 1892, and photograph, 1956.
Bank of Scotland London office: architectural plan by
W. W. Gwyther, 1892, and photograph, 1956.

Disastrous Failures

In 1857, the Western Bank collapsed. Bank of Scotland, along with the other major Scottish players, stepped in to bolster confidence in the banking system. They ensured that all holders of the Western Bank's notes were paid in full.

Twenty-one years later, the City of Glasgow Bank failed in spectacular fashion. All but 254 of its 1,819 shareholders were ruined. This disaster resulted in Scotland's financial focus shifting back to Edinburgh and its more conservative bankers.

New Century, New Challenges

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

Computer department staff, 1963
Computer department staff, 1963.

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, which was to revolutionise British banking. 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 1985, the Bank again led the way with the launch of Home Banking, the first phase of HOBS (Home and Office Banking Service). An early application of internet technology, this gave customers direct access to their accounts, via a television screen and Prestel telephone network.

Overseas Development and Subsequent Mergers

The Bank was 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 U.S. states, Moscow, Hong Kong, and Singapore. Inroads were subsequently made into Australasia, with the 1987 purchase of Countrywide in New Zealand, and that of the Bank of Western Australia (BankWest) in 1995.

In 2001, Bank of Scotland merged with the Halifax to form HBOS plc. Then in January 2009, following unprecedented turbulence in the global financial markets, HBOS plc was acquired by Lloyds TSB. The new company, Lloyds Banking Group plc, immediately became the largest retail bank in the UK.

Its registered office, and Scottish headquarters, is the historic Bank of Scotland building on The Mound, Edinburgh.

Lloyds Banking Group plc registered office, the Mound, Edinburgh.
Lloyds Banking Group plc registered office,
the Mound, Edinburgh.

To find out more about the history of Bank of Scotland and some of the companies it acquired, return to the Bank of Scotland family tree.

Further Information

  • Bank of Scotland 1695-1995: A Very Singular Institution by Alan Cameron (Mainstream Publishing, Edinburgh, 1995).
  • Bank of Scotland A History 1695-1995 by Richard Saville (Edinburgh University Press, Edinburgh, 1996).
  • The Bank of Scotland 1695-1945 by Charles A. Malcolm (R. & R. Clark Ltd, Edinburgh, [1945]).
  • Extensive archives relating to Bank of Scotland are maintained by Lloyds Banking Group Archives in Edinburgh - for further information see our archive collections.
  • Records and artefacts charting the history of Bank of Scotland are also on display in the Museum on the Mound.