1.1.1 Banking and the union of England and Scotland
The origins of banking in the UK had their roots as much in Scotland as they did in England.
In Scotland, the formation of the banking industry started with the formation of the Bank of Scotland in 1695, which retained monopoly powers in the country until the early eighteenth century. In its early years, the Bank of Scotland had to face the financial challenge arising from the collapse of the Darien Scheme which, without the support eventually given by England, threatened to bankrupt the Scottish economy.
The Darien Scheme was an attempt by Scotland to develop its colonial activities to rival those of England.
The scheme was masterminded by William Paterson and involved the establishment of a colony in the Isthmus of Panama, with the aim of benefiting from trade with the Far East. In a sense, the rationale of the plan was in line with that which eventually saw the construction of the Panama Canal.
The scheme got underway in 1696. The colony was initially based at the Bay of Darien. Organised by the Company of Scotland, which had been recently established to support Scotland’s colonial ambitions, the scheme attracted substantial investment from Scottish firms and individuals totalling around £40 million in today’s (2016) money.
Hit by disease, attacked by the Spanish (because Spain had a claim to the same territory) and undermined by England’s refusal to support the scheme (partly because it did not want to alienate Spain), the Darien Scheme quickly collapsed in 1700. Most of the colonists died and the investors lost their money.
The Darien Scheme has been cited as a major factor behind the Acts of Union 1707 between England and Scotland. It has been argued that the failure of the scheme led to a belief in Scotland that if it was to benefit from colonialism and international trade, it had to unite with England.
However, William Paterson had more success with another project on which he took the lead: the establishment of the Bank of England which you look at later this week.