Scottish banking after the union
In 1727, the Royal Bank of Scotland was formed. One early problem was that with both the Bank of Scotland and the Royal Bank of Scotland being Edinburgh-based, and Edinburgh-biased in their lending, businesses operating elsewhere (including Glasgow) often found it difficult to get credit. The upshot was that merchants in other cities set up their own private banks – something which merchants in England were not legally empowered to do.
The British Linen Bank became the leading competitor to the two Edinburgh-based banks in the first half of the eighteenth century and set up offices in several Scottish towns. In doing so, it became the first of the Scottish banks successfully to start a branch network.
During the industrial revolution in the early nineteenth century, the structure of Scottish banking changed quickly. The growth of trade and commerce meant that many of the smaller provincial banks were too small to provide the scale of banking support required by their customers. The result was the establishment of new, larger banks, formed in part through the merger of certain of the provincial banks. This period saw the establishment of the Union Bank of Scotland in 1830 and the Clydesdale Bank in 1838.
One clear feature of the development of the banking industries in England and Scotland was the limited nature of cross-border activities. The banks very largely kept within the borders of their own country – although the Scottish banks did open offices in London in the 1860s and the Clydesdale Bank caused controversy in 1874 when it opened three branches in the north of England. Both of these developments prompted considerable opposition from the English banks, and subsequently the Scottish banks gave up plans to establish branch networks in England. Some observers believe that this was to the disadvantage of the Scottish banks; these arguably had greater financial strength than their English counterparts in the nineteenth century. If cross-border activities had occurred, they would probably have included the acquisition of many of the English banks by those based north of the border.
The next century witnessed a period of consolidation in the Scottish banking industry. By the 1970s, the number of commercial banks had been reduced to three – the Bank of Scotland, the Royal Bank of Scotland and the Clydesdale Bank. The following decade also saw the consolidation of the small savings banks in Scotland into one institution – the Trustees Savings Bank Scotland (TSB Scotland).