Edinburgh Financial Services: Banks, Life Assurance and Investment Trusts

Each major claim carries one of three labels. established means supported by primary records, official bodies or several independent reliable sources. shared means the core fact is sound but sources disagree on details, dates or interpretation. traditional means widely repeated but not traceable to a primary or independent source.

Rankings of financial centres and employment figures change frequently and depend on definitions, so this card avoids precise rankings. Bailout totals are reported in slightly different ways by different sources.

Two old banks

established The Bank of Scotland was created by an Act of the Scottish Parliament in 1695, just a year after the Bank of England. The Royal Bank of Scotland was chartered in 1727, growing out of the Equivalent Company, which held compensation paid at the Union of 1707, partly for losses in the Darien scheme. Their rivalry stimulated innovation, including the cash credit account, an early form of overdraft, introduced by RBS in 1728, and the issue of banknotes. Scottish banks still issue their own notes today.

established Carol Foreman's chapter in Made in Scotland (2nd edn, 2010), drawn from the bank's own archives, fills in the founding. The Equivalent paid at the Union was £398,085 10s, but only £100,000 arrived in coin, later raised to £150,000 after protest, so many creditors were paid in debentures. The debenture holders' societies were wound up in 1724 into the Equivalent Company, whose directors then sought a banking charter. The Bank of Scotland's 21-year monopoly had lapsed in 1716 and not been renewed, and the charter incorporating the Royal Bank was granted on 31 May 1727. The bank opened on 8 December 1727 with a capital of £111,347, a staff of eight and the Earl of Ilay, later Duke of Argyll, as its first governor. It at once collected large quantities of Bank of Scotland notes and presented them for payment, trying to break its rival; by May 1728 the two were discussing a merger, which came to nothing. The first cash credit in the ledger was granted to William Hogg junior.

established Foreman also traces the bank's spread. Its first branch opened in Glasgow in 1783, run by Robert Scott Moncrieff and the cotton manufacturer David Dale, and for fifty years it was the bank's only branch, financing the tobacco, cotton and sugar trades. In 1825 the head office moved into Dundas House in St Andrew Square, built in 1772 for Sir Lawrence Dundas, a former governor; the domed banking hall behind it was added in the 1850s. By 1910 RBS had 158 branches. It bought into London through Drummonds (1924), Williams Deacon's (1930) and Glyn, Mills & Co. (1939), and in 1969 merged with the National Commercial Bank of Scotland, giving it 693 branches and, Foreman writes, over 40 per cent of Scottish banking business.

shared Several of the "firsts" Foreman reports are the bank's own claims: that in 1972 RBS was the first British clearing bank to offer house-purchase loans, and that in 1997 it announced the UK's first full internet banking service. The cash credit of 1728 is widely accepted as an early form of overdraft, but calling it "the invention of the overdraft", as the bank and Foreman do, goes further than the evidence needs.

Widows and life assurance

established In the 1740s two Church of Scotland ministers, Robert Wallace and Alexander Webster, with the mathematician Colin Maclaurin, set up a fund for ministers' widows based on calculations of life expectancy, a landmark in actuarial science. In the nineteenth century Edinburgh became a centre of life assurance, with companies including Scottish Widows (1815), Standard Life (1825) and others. They invested policyholders' money widely and employed large professional staffs.

established The historian T. M. Devine, in To the Ends of the Earth (2011), notes that by the middle of the nineteenth century the policy values of Scottish life offices, at £34 million, were only a little below total Scottish bank deposits of £36 million. The life offices joined the rush abroad. Standard Life held only £0.5 million in overseas railway and government bonds, mortgages and property in 1880, but £7.5 million by 1910, well over half its assets. Scottish Widows had about £6 million in foreign assets by 1900.

Investment trusts

established In the 1870s Scottish financiers began forming investment trusts, companies that pooled savings from many investors to buy a spread of shares and bonds. Devine points out that the idea was not Scottish: it had appeared in Belgium in the 1820s, and the first British trust was founded in London in 1868. Two Scottish ventures followed in 1873. In Edinburgh the lawyer William J. Menzies, a Writer to the Signet who had visited the United States in 1864, 1867 and 1872, was the driving force behind the Scottish American Investment Company. In Dundee, Robert Fleming was the main influence on the Scottish American Investment Trust; he was later said to have crossed the Atlantic 128 times. Their two selling points were spreading risk across many holdings and expert management, which made it possible to attract small savers. Fund management firms such as Baillie Gifford, founded in Edinburgh in 1908, grew from this tradition.

established There were earlier, smaller ventures: the Australian Company of Edinburgh and Leith in the 1820s, Aberdeen mortgage companies in Australia in the 1830s and 1840s, and the Illinois Investment Company of 1837. The real boom began after the American depression of 1873, when Scots bought cheap railroad securities. It spread into mortgages, ranching, mining and land across four continents.

Lawyers, savers and the "golden flood"

established Devine stresses the role of the legal profession. The Economist noted in 1888 that hardly an influential Edinburgh law firm lacked an agency for a colonial investment company, and an Australian banker described the city as "honeycombed with agencies for collecting money". In 1882 a newspaper correspondent mocked the American promoters arriving at Edinburgh with a cattle ranch in one pocket and a "timber limit" in the other, pursued down Princes Street by solicitors (S.S.C.s), each with a small syndicate behind him. Overseas borrowers came in person: after the Chicago fire of 1871, which destroyed over 12,000 properties, the city's delegation came to Edinburgh in 1874 with letters from the Governor of Illinois, a senator, the mayor and the US Treasury. In November 1890 twenty-one Australasian banks advertised for deposits in The Scotsman alone.

established The pull was the interest rate. Blackwood's Edinburgh Magazine observed in 1884 that money borrowed at 4 per cent could be lent at 8 to 10. The chairman of the Scottish American Mortgage Company put the Chicago business more bluntly: borrow at 4½ to 5 per cent at home, lend at 8 per cent in Chicago, "any schoolboy can tell you that". Of eight Scottish-American cattle companies in 1883, five paid dividends of 10 to 20½ per cent.

shared Devine describes a partial "democratisation" of investment. Scots with foreign assets rose from about 4,000 in 1867 to 30,000 in 1890 and nearly 80,000 by 1913, and the women's share of probated estates with foreign assets rose from just over 6 per cent to a fifth between 1867 and 1890. Savings banks, begun in 1810, had over 500,000 accounts by 1907. But he argues that investors remained a middle-class minority, and that overseas returns deepened inequality: the "democratisation" label, in his view, overstates it.

shared The scale is uncertain. One well-known estimate puts Scottish overseas investment at £60 million in 1870 and £500 million by 1914, rising from 7 to 12 per cent of British foreign lending; another gives £110 a head in 1914 against a UK average of £90. Devine prefers the most recent study, by Christopher Schmitz, which suggests between £390 million and £520 million. Between 1885 and 1910 about 44 per cent of the increase in Scottish capital went abroad. In the 1880s at least a third of Australian pastoral, mortgage and investment securities were taken up in Scotland, and one estimate holds that two-thirds of British money in American stocks and mortgages was Scottish.

shared It was not always canny. The historian W. T. Jackson calculated that Scots put about £20 million into the American West in three years and then, in 1884 alone, lost £1 million and saw another £3 million depreciate. Booms collapsed in Argentina, Australia (1893) and the United States in the 1890s. Devine also argues that money went abroad because Scotland lacked profitable outlets at home, even though nearly half the population lived in one- or two-roomed houses in 1914, because tenement property yielded poor and falling returns.

Europe's financial centre

shared Devine suggests one source of the later growth: as old Scottish industrial families sold their firms to outside owners after 1945, they often put the proceeds into investment trusts and similar funds, helping to build up the financial sector. By the late twentieth century Edinburgh's financial sector had become one of the largest in Europe outside London, especially in fund management, insurance and pensions. Rankings vary by year and measure. RBS grew rapidly under chief executive Fred Goodwin, taking over NatWest in 2000 and building one of the largest banks in the world. The ground had been laid earlier: in 1985 RBS combined its English subsidiary Williams & Glyn's with the parent bank and founded Direct Line, which sold car insurance by telephone without agents, and in 1988 it formed an alliance with Banco Santander. The NatWest purchase cost £21 billion, then the largest takeover in British banking.

The crash

established In 2008 the global financial crisis exposed RBS's huge balance sheet and its 2007 purchase of the Dutch bank ABN AMRO. In October 2008 the UK government injected billions of pounds and eventually took majority ownership, with a total of about £45 billion of public money. HBOS, formed when the Bank of Scotland merged with Halifax in 2001, was taken over by Lloyds TSB with government support. The crisis damaged Edinburgh's reputation, and RBS was renamed NatWest Group in 2020. The UK government sold its last shares in 2025.

shared Edinburgh remains a significant financial centre, especially in asset management. Commentators still argue about how much the crash was a failure of Scottish banking and how much part of a global crisis.

• The Bank of Scotland was founded just a year after the Bank of England.
• RBS introduced an early overdraft in 1728.
• Scottish ministers helped pioneer actuarial science in the 1740s.
• Edinburgh investors financed American railways through investment trusts.
• RBS's 2008 bailout was among the largest in the world.
• A delegation from Chicago came to Edinburgh in 1874 to raise money to rebuild the city after its great fire.
• Robert Fleming of Dundee was said to have crossed the Atlantic 128 times on business.
• In November 1890 twenty-one Australasian banks advertised for Scottish deposits in The Scotsman.

• Myth: Scotland invented the investment trust. The idea appeared in Belgium in the 1820s and the first British trust was founded in London in 1868. Scots made it popular from 1873.
• Myth: the Royal Bank of Scotland invented the overdraft. Its cash credit of 1728 is widely accepted as an early form of overdraft, but calling it the invention of the overdraft goes further than the evidence needs.
• Disputed: how much Scotland invested overseas by 1914. Estimates range from about £390 million to £520 million, and an older figure gives £500 million. No exact total is possible.
• Disputed: how far investment was "democratised". Holders of foreign assets rose from about 4,000 in 1867 to nearly 80,000 in 1913, but T. M. Devine argues that investors remained a middle-class minority.
• Disputed: how Edinburgh ranks among financial centres. It was one of the largest in Europe outside London, but rankings change with the year and the measure used.
• Disputed: whether the 2008 crash was a Scottish failure. Commentators still argue about how much was a failure of Scottish banking and how much part of a global crisis.