The Royal Bank of Scotland

1727-1939

On 31 May 1727 The Royal Bank of Scotland was founded as a corporation by grant of a Royal Charter under the Great Seal of Scotland. It had a capital of £111,347 and authority to ‘exercise the rights and powers of banking’. The Earl of Ilay, one of the most powerful men in Scotland, was its first governor, and in December 1727 the new bank opened for business in Ship Close, Edinburgh. The Royal Bank demonstrated its willingness to innovate in 1728 by introducing the ‘cash accompt’, forerunner of the ‘overdraught’, whereby a merchant of good standing, backed by the bond of friends, could borrow more than he had deposited. Soon afterwards the Bank also began to accept deposits at interest, although note issue was to remain the focus of its lending and profits for several decades. In the years that followed the Royal Bank developed connections with the growing number of provincial banking companies, thereby pioneering correspondent banking in Scotland, and in 1783 also opened its first branch in Glasgow, where it had long been involved in financing the profitable tobacco trade.

In 1819 the Bank moved from the congested Old Town to St Andrew Square in the New Town of Edinburgh, occupying from 1825 a magnificent Georgian town house, which remains the Bank’s registered office today. The Bank continued to expand during the nineteenth century, opening branches in Dundee, Rothesay, Dalkeith, Greenock, Port Glasgow and Leith during the 1830s, acquiring various agencies of Western Bank after its collapse in 1857 and purchasing Dundee Banking Company (established 1763) in 1864. In 1874, authorised by private Act of Parliament, The Royal Bank of Scotland followed the example of the other Scottish banks and opened a branch in London. Despite difficult trading conditions during the closing years of the nineteenth century the Bank continued to thrive and by 1910 boasted 158 branches and around 900 staff.

The outbreak of the First World War heralded a period of rapid change in the banking industry. The banks were drawn into funding the government's war loans and advances, and note issue increased rapidly. Many bank officers and clerks of military age enlisted and gaps were filled by temporary junior clerks and the recruitment of female staff on an unprecedented scale. Overall the volume of banking business grew during the war, prompting a series of major amalgamations in 1918, including moves to affiliate certain Scottish and English banks. The Royal Bank, embarked upon a policy of expansion in London, acquiring Drummonds Bank (established c.1712) in Charing Cross in 1924 and the Bank of England's Western branch in Burlington Gardens in 1930. In the latter year the Royal Bank also took over Williams Deacon's Bank (established 1836), with principal offices in both London and Manchester and a large network of branches in the north-west of England. Despite this important series of acquisitions the Royal Bank shared in the trading problems which all the banks experienced during the depressed inter-war years and, during the late 1920s, tried to attract small deposits and increase the number of its customers by the introduction of savings accounts and expansion and refurbishment of its branch network.

1939 - 1980

In 1939, with war imminent, the Royal Bank negotiated the purchase of Glyn, Mills & Co (established 1753) of London, Britain's most important private bank. Glyn, Mills offered a wide range of services more usually associated with merchant banks, and also brought with it the prestigious and old-established London banking businesses of Child & Co (established c.1580s) of Fleet Street and Holt & Co (established 1809) of Whitehall. Both Glyn, Mills and Williams Deacon's Bank continued in business as separate entities and together with The Royal Bank of Scotland became known as The Three Banks Group.

During the Second World War the Bank experienced similar problems as in 1914 to 1918, with controls over foreign exchange and lending priorities, and the marketing and distribution of savings certificates and defence bonds. Again large numbers of staff joined up, requiring the recall of retired employees and more widespread use of women workers. During the 1950s and 1960s expansion continued with the opening of new branches in Scotland and London and the establishment of a representative office in New York. A new category of loan, the 'personal loan', was introduced alongside a pioneering saving stamp scheme, an early pre-paid form of cash dispensing machine and the automation of branch book-keeping.

In April 1969, in a climate of continuing bank mergers, The Royal Bank of Scotland amalgamated with National Commercial Bank of Scotland, which comprised a branch network and administration formed by the fusion of National Bank of Scotland (established 1825) and Commercial Bank of Scotland (established 1810) in 1959, supplemented in 1966 by the acquisition of the English and Welsh branches of The National Bank (established 1835). The reorganisation was effected by the establishment of a holding company, National and Commercial Banking Group, and the new bank, with 693 branches, enjoyed over forty per cent of Scotland's banking business. In 1970, the group's three London clearing banks, Glyn, Mills & Co, Williams Deacon's Bank and The National Bank, combined to form Williams & Glyn's Bank.

During the 1970s, The Royal Bank of Scotland flourished, playing a leading role in lending to businesses that served the North Sea oil and gas industry and launching its own leasing and finance companies. In 1972 it recognised the growing interest in, and enthusiasm for, home ownership and became the first British clearing bank to introduce a house purchase loan scheme for customers. In 1973 it also became the first Scottish bank to put all its branches totally 'on-line' for the processing of their accounting work and four years later new automatic tellers, known as Cashline, replaced the earlier fixed-amount machines. The Scottish Cashline network rapidly became established as the busiest system in the world. In England and Wales Williams & Glyn’s was similarly successful and innovative, introducing the Masterguard insurance scheme and free banking for personal customers in credit and also opening an office in Greece.

1980 - 2000

In 1983, following the failure of rival bids to acquire The Royal Bank of Scotland Group by Standard Chartered Bank and Hongkong and Shanghai Banking Corporation, the Royal Bank conceived a new corporate strategy and plans were announced to merge the businesses of Williams & Glyn’s Bank and The Royal Bank of Scotland. The merger was effected by a private Act of Parliament, so that from the end of September 1985 both banks traded together throughout Britain as a single entity, The Royal Bank of Scotland plc. In the same year the Royal Bank Group set up a novel style of car insurance company, based on the most up-to-date technology, eliminating the need for agents and middlemen, and selling by telephone and coupon response. The subsidiary, subsequently known as Direct Line Insurance, has been one of the financial services sector’s greatest success stories of recent years.

In 1988, in order to diversify into retail banking markets in another currency area, The Royal Bank of Scotland acquired Citizens Financial Group (established 1828) of Providence, Rhode Island. The purchase proved to be a wise one, the fierce competitive pressures in New England allowing Citizens to buy up a number of struggling banks. Meanwhile, in Europe a pioneering alliance was forged with Banco Santander of Spain and a pan-European electronic banking service, IBOS (Inter Bank On-Line System), was set up which now takes in major banks in France, Portugal, Belgium, Italy, Denmark, Netherlands, USA, Canada and Mexico.

During the early 1990s the Royal Bank refocused on its core business of retail banking, selling off its merchant bank interests and acquiring, in 1992, the Edinburgh-based private bank of Adam & Company (established 1983). Thereafter, the Group underwent a period of intense organisational and business change restructuring the Bank’s business to focus more directly on customer requirements, whether retail, commercial or corporate, opening new look open-plan branch premises and introducing pioneering technology. The Bank expanded its Cashline network, to include such sites as superstores, cinemas and airports, and remains the only UK bank to offer access to all the UK’s cash machines. It launched Direct Banking in 1994, which quickly became Britain’s fastest growing twenty-four-hour telephone banking operation, and established a pioneering independent offshore bank, Royal Bank of Scotland International, in 1996. Determined to continue to diversify the way in which it delivered its services to customers, in 1997 the Royal Bank announced the UK’s first fully-fledged on-line banking service over the Internet, set up Royal Bank Direct Loans, a telephone-based personal lending service, and launched joint financial services ventures with both the retailing giant Tesco and Virgin Direct.

Most recently, in March 2000 the Royal Bank acquired National Westminster Bank plc to become the third largest bank in the UK, and one of the top ten in Europe. Thus the Royal Bank maintains a tradition of innovation and service which began almost 300 years ago in 1728 with its invention of the overdraft.