The times. [volume] (Richmond, Va.) 1890-1903, 1898-02-12
THE BANK or SCOTLAND AND THE
CREDIT SYSTEM.


Much has been said IN the recent dis
cussion Of the banking system of this
country about banking in England and
Scotland. The account given of the Bank
OF Scotland in tho Bankers Magazine for
last month is therefore, specially IN
teresting just now.
The Bank of Scotland was chartered in
1876, and one of the extraordinary pro
visions in its charter was that any person
buying its stock should become ipso facto
a naturalized British subject, and this
privilege was largely availed OF by for
eigneIs and remained in force until 1919.
IT was evidently not considered a crime
then 20 he stockholder in a bank. Inc
liability Of stockholders was limited 20
their holding Of stock, and the power to
issue notes was without limit, and so re-
manned until 1915. when the power in this
respect was limited to the amount or
notes the bank then had outstanding.
The bank at first was only bank OF
issue. and in order to float its notes had
branches at four principal Scotch towns
besides Edinburgh.
THE part performed by this note cir
oulation was a most important one" John
Law said of the bank. Its notes went
for four or FIVE times the value OF the
money In the bank and so much was
added TO the money of the nation. Its
noes passed through the whole country,
while those OF Amsterdam only IN that
town. and those of the Bank of England
are of but little use but at London"
But the most valuable feature of this
bank. and the one to which we desire TO
cali special attention in this article. was
its "cash credit system" ana its organi-
cation OF branches for carrying out that
system.
This arrangement would be of the ut
most value TO our own country, but 1t is
one which the vicious provisions OF the
national bank act forbids. Previous 10
l72s the Bank of Scotland lent its money
mainly on mortgages. personal bonds and
discounts The loans under the cash
credit system were charged per cent
interest with an abatement of per cent
II interest was regularly paid every half
year, while discounts were charged per
cent. for sums over 400 and ~ per cent.
for smaller sums. Thus a preference
was given to these loans under the cash
credit system. by which not only was the
note circulation helped, but the system
aided greatly in providing capital for the
traders aud AGRICULTURISrS OF poor
country, such as Scotland then was. In
fact nothing contributed so much to the
prosperity Of Sotland during the sixteenth
century as this banking feature alone. ="
This system Is thus described by com
mittee OF the House OF Lords:
There Is also one part Of their system
which ~ stated by all the witnesses land
in the opinion of the committee very
justly stated 20 have had the best effects
upon the people OF Scotland in producing
AMI encouraging habits of frusalty and
industry. The practice referred To Is
that of cash credits. Any person VINO
applies 10 bank for a cash credit Is
called upon TO produce two or more COM
petent securities, who are jointly bound,
and after a full inquiry into the character
OF the applicant. the nature OF his bush
ness and the sufficiency of his securities
he Is allowed TO open credit and TO draw
upon the bank for the whole OF ITS
amount or Tor such part as his daily
transactions may require. 10 the credit
81 his account he pays IN such sums as
nc may not have occasion 60 use, and in
terest Is charged or created upon the
daily balance as the case may be, FROM
the facility which these cash credits give
10 the small transactions OF the country
aud from the opportunities which tney
afford 20 persons who begin business with
little or no capital but their character
TO employ prohtably the minutest pro-
ducts OF their industry. Il cannot be
doubted that the most important adVan-
tages are derived 10 the whole community.
The advantage TO the banks who give
these cash credits arises from the call
which they continually produce for the
issue OF their paper ana from the oppor-
funity which they afford for the profitable
employment OF part OF their deposits. fhe
banks are. indeed, SO sensible that IN
order 20 make this part OF their business
advantageous and secure. II Is necessary
that their cash credits should Gas they
express 80 be frequently operated upen'
that they refuse 20 continue them unless
this implied condition be fulnlled"
That these loans 20 largely made 10