Banking began in Scotland in 1695, when the Bank of Scotland was founded. This was followed by the Royal Bank of Scotland in 1727. Both were established by public authority.
The British Linen Bank (based in Edinburgh and also established by public authority), Formerly the British Linen Company, was formed in 1746. This supported the huge manufacture of linen, from flax in Scotland. The production of linen, which is recorded as far back as the Battle of Bannockburn, according to electricscotland, was widespread in Scotland. Many of us as children remember the smell and noise of the looms from the factories in our home towns.
As an associate bank of Barclays from after the first World War, the British Linen Bank was acquired by the Bank of Scotland in 1969 as its commercial arm.
Beside these, there were many smaller banks springing up in places such as Aberdeen, Glasgow, Greenock, Dundee, (Cupar), Paisley, Perth and Stirling etc, according to Economic Life. Many of these produced their own bank notes. (Up until the Bank Charter Act of 1844, this was allowed throughout the UK, and still exists legally in Scotland to this day!) They go on to suggest that by the early 1800’s there were roughly 30, with many collapsing or merging with larger banks, the latter of which opened branches in Scottish towns and cities, reflecting the economic growth of the country at the time.
The Clydesdale bank, founded in 1838 and based in Glasgow, is one of only three Banks producing currency notes in Scotland. The other two are the Bank of Scotland and The Royal Bank of Scotland.
According to the family Records by Carruthers and Reid, John Carruthers, 12th of Holmains invested along with many other landed gentry in the Douglas Heron Bank of Ayr. His investment was £500 worth of shares, the equivalent to £43,000 today. The collapse of the bank in 1772 led to a loss of £366,000, roughly £31.5 million today. Not much in the banking world currently, but the cost to the investor was around £2,600 a share, which bankrupted many, as the shares carried unlimited liability, John the 12th was one of them, leading to the loss of the Holmains estate.
According to jisc.ac.uk, an international online educator who took their information from Lloyds banking group Edinburgh and the Scots Magazine dated June 1772, the Douglas, Heron and Company, more commonly known as the Ayr Bank, was founded by a contract of co-partnery in 1769, and began business in November that year. The nominal capital of the Company was £150,000, of which £96,000 was immediately subscribed.
Many of the 131 original partners were substantial landowners based in the south-west of Scotland, and included the Duke of Buccleuch, the Duke of Queensberry and Archibald Douglas the Earl of Dumfries (Also included were John Carruthers 12th of Holmains and his uncle, William Douglas of Kelhead, ed.). It has been estimated that the combined wealth of the founding partners was between £3 to £4 million (around £200 million today). This made the Company seem very secure. But there were problems right at the outset, which foreshadowed the crisis to come. None of the partners had much practical banking experience and under the terms of the co-partnery, none were protected by limited liability.
From the beginning, Douglas, Heron and Company undertook a doubly risky strategy: rapid expansion and the provision of large amounts of credit. At the time the Ayr Bank was formed, the two main public Scottish banks, the Bank of Scotland and the Royal Bank of Scotland, were unwilling to make large advances in the increasingly speculative conditions of the late 1760s. Douglas, Heron and Co. stepped into the void.
The Ayr Bank’s Head Office was located in the Sandgate in Ayr, and branches were established at Dumfries and Edinburgh. The Company also set up agencies at Glasgow, Inverness, Inveraray, Kelso, Montrose and Campbeltown. The main function of these agencies was to promote the circulation of Ayr Bank notes, substituting them for those of rival banks. By 1772, notes of the Ayr Bank constituted close to two-thirds of the total Scottish note issue. (At the time other banks sprung up which have since disappeared, one of which was the Thistle Bank of Glasgow (1763), ed.)
Further consolidating its rapid growth, Douglas, Heron and Co. purchased two smaller banks based in south-west Scotland in 1771: John MacAdam and Company (also known as the Ayr Banking Company), and Johnston, Lawson and Company (the Dumfries Bank).
As time went on however, problems in the Company’s lending arrangements began to emerge. Many of the Ayr Bank’s advances had, in effect, become permanent loans. The Bank attempted to cover the loans with short-term borrowing on the commercial money market. It embarked on what Sir William Forbes described as ‘the ruinous mode of raising money by a chain of bills on London.’ Matters were not helped by the fact that the managers attempted to hide the true situation of the Company’s affairs from the shareholders.
Ultimately the collapse of Douglas, Heron and Co. was precipitated by the failure of the London-Scottish banking house Neale, James, Fordyce and Downe in June 1772, which had extensive connections with the Ayr Bank. Heavily in debt and unable to meet demands for cash on its banknotes, the Ayr Bank was forced to close its doors on 25th June. The Dukes of Queensberry and Buccleuch, along with the Earl of Douglas and the Earl of Heron approached the Bank of England to try to secure loans on the security of their lands. The Bank of England offered £300,000, but the terms were considered too severe. Subsequent approaches to Bank of Scotland and the Royal Bank were rejected.
The Ayr Bank managed to reopen for a brief period between September 1772 and August 1773, but a general meeting of the partners held on 12th August decided to dissolve the Company permanently.
In July 1776, the partners of the Ayr Bank met to form a committee to conduct an inquiry into the Company’s failure. Their report – Precipitation and Fall of Messrs Douglas, Heron and Company, Late Bankers in Ayr with the Causes of their Distress and Ruin – was completed in August 1777 and published the following year. Key reasons for the Bank’s collapse included forced and inflated circulation of currency, profuse and injudicious granting of credit and a lack of central direction – each branch was effectively independent of head office and had its own board of directors. The report also cited gross misconduct:
Imprudent, or erroneous management alone, could not have produced such destruction… we are sorry to say, that our misfortune has in a great degree been occasioned… by an open disregard, not only of the principles of the Co-partnery, but of the express and positive rules and regulations laid down for the conduct of Managers…
The winding up of the Company, which had begun in 1773, took 20 years to complete. At this point all the records of the Ayr Bank were transferred into the custody of the British Linen Company. They were ‘still in the vaults’ when John Buchanan compiled his list of Scottish banks in 1862. What became of them thereafter, however, is a mystery.
According the Burns Encyclopaedia, Rabbie Burns met Patrick Heron of Heron (Kirroughtree) b.1736 d.1803, a founder along with Holmains of the Ayr Bank in 1794 when visiting Kirkcudbright. Burns seemingly was impressed by the man and supported him with ballads when he ran as a Whig Member of Parliament, which he held until 1803.
Holmains lost all his estates, and died with regrets. It was this loss that diverted the descendants of Holmains from tasking up the mantle of Chief. It wasn’t until 2019 that this was resolved when his 4 x great grandson Peter Carruthers of Holmains was confirmed by the Lord Lyon as Chief of the Name and Arms of Carruthers. This leaves Carruthers of Dormont, distant cousin to the Chief, as the only family member left on our ancestral lands in Annandale.