Royal Bank of Scotland

2. The Cash Credit of 1728

The new bank needed customers, and it competed by offering something the Old Bank did not. In May 1728 it granted William Hog, a merchant of Edinburgh, a cash credit of £1,000: a pre-agreed limit against which he could draw and repay as his trade required, paying interest only on what he actually used.

That is a recognisably modern product. It is not a loan of a fixed sum for a fixed term, but a revolving facility attached to a current account — working capital on tap. For a trading economy short of coin, and reliant on cargoes that were paid for months before they sold, it was transformative. The cash credit spread through Scottish banking, was extended to small businesses and farmers, and is usually cited as one of the reasons Scotland’s eighteenth-century commercial growth outran its capital base.

3. “World’s First Overdraft”

The bank’s own heritage material and a great deal of press coverage call the Hog cash credit the world’s first overdraft. The underlying event is real and the archive is the bank’s own, so this is not folklore. But the superlative claims more than the evidence can carry.

Lending against a customer’s standing rather than a specific security is ancient. Merchant houses ran reciprocal open accounts across medieval Europe; London goldsmith-bankers allowed favoured clients to draw beyond their balances in the seventeenth century, informally and case by case. What is not documented before 1728 is a bank offering such a facility as a formal, named, institutionalised product on agreed terms, recorded in the minutes, and then rolled out as standard business.

So the phrasing this card uses is: the first known formal, institutionalised overdraft facility — the direct ancestor of the modern overdraft. That is still a substantial Scottish first, and it has the advantage of being true. One further precision: the month, May 1728, is well supported; specific days appear in some accounts without primary support, and should be treated as unverified.

4. Notes and the Note Wars

A bank of issue in the 1720s lived or died by whether its notes were trusted. The two Edinburgh banks understood the implication immediately: collect your rival’s notes quietly, then present them all at once and demand gold. The Bank Wars followed. The Royal Bank struck first and hardest, and in March 1728 the Bank of Scotland was forced to suspend payments and call in loans. It resumed redemption with interest by that September.

Both banks then adopted the option clause, reserving the right to delay redemption at 5% interest — a defensive device outlawed by the Bank Notes (Scotland) Act 1765. Around 1751 the two banks made peace and agreed to accept each other’s notes at par, which did more for Scottish monetary stability than either bank’s aggression had done for its own balance sheet.

Note issue survives. The Royal Bank is one of three Scottish banks of issue today, and the only UK bank to have issued £1 notes continuously. As with all Scottish notes, they are not legal tender anywhere in the United Kingdom — in Scotland no banknote is — but they are legal currency, authorised by statute and fully backed under the Banking Act 2009.

5. Branches, London and Empire

The bank opened its first branch outside Edinburgh in Glasgow in 1783, following the tobacco and cotton money west, and built a branch network far denser than English banking of the period. In 1874 it opened a London office over the objections of English bankers, who regarded a Scottish bank on their ground as an intrusion. Scottish banks financed a great deal of nineteenth-century imperial trade, and the honest version of that story includes the parts of it — tobacco, sugar, cotton — that rested on slavery and its afterlives.

6. Mergers and the Twentieth Century

A long sequence of amalgamations turned a national bank into a British one. The 1969 merger with the National Commercial Bank of Scotland created the largest Scottish bank of its day. A holding company, Royal Bank of Scotland Group, was formed in 1985, absorbing the English Williams & Glyn’s brand into the group. The 1988 purchase of Citizens Financial Group built a substantial American retail business.

Then, on 6 March 2000, the Royal Bank completed the acquisition of National Westminster Bank for about £21 billion, outbidding the Bank of Scotland. It was the largest takeover in British banking history at the time, and remarkable because the acquirer was roughly a third of the target’s size. The integration went well. That success is inseparable from what came next: it built the confidence, internal and external, that made a far larger and far worse deal seem manageable.

7. ABN AMRO and 2008

In October 2007 RBS led a consortium with Fortis and Santander that broke up the Dutch bank ABN AMRO for roughly €71 billion — the largest bank takeover ever attempted. RBS took the investment-banking and Asian operations. The deal was completed largely with debt, at the top of the credit cycle, weeks after the first tremors of the crisis had already appeared in wholesale funding markets. Due diligence, the regulator later found, was extremely limited.

For a moment RBS was, by some measures, the largest bank in the world by assets. Then the funding on which that balance sheet depended stopped being available. In October 2008 the UK government injected £45.5 billion of capital — the largest bank rescue in British history and among the largest anywhere — and state ownership eventually exceeded 84%. On 26 February 2009 the group reported a loss of £24.1 billion for 2008, then the largest annual loss in UK corporate history.

8. The Aftermath and the Findings

The Financial Services Authority’s report of 12 December 2011 is the authoritative account, and it is careful. RBS failed, it concluded, because of poor decisions: thin capital, heavy reliance on short-term wholesale funding, weakening asset quality, the scale and risk of the investment bank, and the ABN AMRO acquisition made on inadequate due diligence. It did not find dishonesty or an actionable breach of the rules as they then stood, and it was pointed about the failures of the regulator’s own supervisory approach. Fred Goodwin, chief executive from 2001 to 2008, was stripped of his knighthood in 2012.

A separate and domestically damaging episode concerned the Global Restructuring Group, which handled business customers in difficulty. Allegations that viable firms were treated harshly, and that the bank profited from their distress, led to an independent review and a compensation scheme. In 2019 the FCA concluded that its powers over commercial lending were too limited to support enforcement action against senior management, while accepting that customers had been treated inappropriately on a wide scale.

Restructuring ran for a decade: Citizens was divested, the investment bank shrunk drastically, the branch network cut, and the court-ordered separation of Williams & Glyn abandoned after repeated failures.

9. Renaming, 2020

On 22 July 2020 the parent company was renamed from Royal Bank of Scotland Group plc to NatWest Group plc. The stated reasoning was straightforward: most of the group’s customers banked under the NatWest brand, and the group name described neither the business nor its centre of gravity.

What the rename did not do is abolish the Scottish bank. The Royal Bank of Scotland plc remains a Scottish-registered bank, headquartered at Gogarburn in Edinburgh with its registered office at 36 St Andrew Square, trading under its own name in Scotland and issuing its own banknotes. The government’s residual shareholding was sold down to zero in 2025, returning the group fully to private ownership seventeen years after the rescue — at an overall loss to the taxpayer on that stake.

Timeline

1. 1707

   The Equivalent

   The Treaty of Union compensates Scottish investors for Darien-era losses and assumed debt; the creditors organise as the Equivalent Company

2. 31 May 1727

   Royal Charter granted

   The Equivalent Company's banking arm becomes the Royal Bank of Scotland — a Hanoverian counterweight to the “Old Bank”

3. May 1728

   The first cash credit

   William Hog, an Edinburgh merchant, is granted a £1,000 revolving facility on his current account

4. Mar 1728

   The Old Bank suspends payments

   The Royal Bank's note raids force the Bank of Scotland to suspend and call in loans

5. 1730

   The option clause

   Both banks reserve the right to delay redemption at 5% interest; outlawed 1765

6. c. 1751

   Truce

   The two Edinburgh banks agree to accept each other's notes at par

7. 1783

   First branch outside Edinburgh

   Glasgow — the beginning of a national branch network

8. 1826

   The £1 note defended

   Walter Scott's Malachi Malagrowther letters help preserve the Scottish small note

9. 1845

   Bank Notes (Scotland) Act

   Scottish banks then issuing keep their note rights

10. 1874

    London office opens

    Contested by English bankers; the start of the bank's move south

11. 1969

    Merger with the National Commercial Bank

    Creating the largest Scottish bank of its day

12. 1985

    Royal Bank of Scotland Group formed

    A holding company structure; the Williams & Glyn's brand is absorbed

13. 1988

    Citizens Financial Group acquired

    The beginning of a large US retail business

14. 6 Mar 2000

    NatWest acquired

    £21 billion — then the largest takeover in British banking history, of a bank three times its size

15. Oct 2007

    ABN AMRO broken up

    RBS leads a consortium with Fortis and Santander in a €71 billion deal, funded largely by debt

16. Oct 2008

    State rescue

    £45.5 billion of UK taxpayer capital; state ownership eventually exceeds 84%

17. 26 Feb 2009

    £24.1 billion loss

    The largest annual loss in UK corporate history at the time

18. 12 Dec 2011

    FSA report published

    The regulator finds poor decisions, thin capital and flawed ABN AMRO due diligence — not criminality

19. 2013–2019

    Restructuring

    Citizens divested, the investment bank shrunk, branch network reduced, the Williams & Glyn separation abandoned

20. 22 Jul 2020

    Parent renamed NatWest Group plc

    The Scottish subsidiary retains the Royal Bank of Scotland name and note issue

21. 2025

    Back in private hands

    The government's residual shareholding is sold down to zero

Did You Know?

• The bank exists because of the Darien disaster — its founding shareholders were the investors compensated for it under the Union.
• It was founded partly for political reasons: a Hanoverian bank to balance one suspected of Jacobitism.
• The first recorded cash credit customer was an Edinburgh merchant called William Hog, in May 1728.
• Within a year of opening it had forced its 33-year-old rival to suspend payments.
• It is the only UK bank to have issued £1 notes continuously.
• In 2000 it bought NatWest, a bank about three times its size.
• For a brief period in 2008 it was, on some measures, the largest bank in the world by assets.
• The 2008 rescue was £45.5 billion — the largest in British history.
• The 2011 FSA report criticised the regulator's own supervision as well as the bank's decisions.
• Renaming the group NatWest in 2020 did not abolish the Royal Bank of Scotland, which still issues notes from Edinburgh.

Honest Caveats

• The overdraft claim rests on a definition. Call it the first formal institutionalised facility and it holds; call it the first time anyone borrowed beyond a balance and it does not.
• The exact day of the Hog credit is unverified. Use May 1728.
• Heritage sources are primary but promotional. The bank’s archive is excellent on events, less reliable on superlatives.
• Bailout arithmetic varies by definition. £45.5 billion is the capital injected into RBS; wider figures that include guarantees and liquidity schemes are much larger and are not comparable.
• “Largest loss in UK corporate history” was true at the time. Treat it as a 2009 statement, not a permanent record.
• Ownership statements date quickly. Group structure and shareholding should be refreshed against the latest annual report.

Frequently Asked Questions

Related Cards

• Bank of Scotland

  The 1695 rival — which did not invent the overdraft.

• The Savings Bank Movement

  Credit and thrift for those the chartered banks ignored.

• Scottish Chartered Accountancy

  The audit profession that grew alongside Scottish banking.

• Faculty of Actuaries in Scotland

  Edinburgh's other financial profession, from 1856.

• Scotland's Two Parliaments

  The Union settlement that created the Equivalent.

• University of Edinburgh

  Where Scottish political economy was taught.

• City of Glasgow Police

  Another Scottish “world first” that needs qualifying.

• The Keepers of Scotland

  The archives where charters like 1727 survive.