The story of most of the smaller Scottish banking firms is reasonably well documented. Munn's outstanding compilation1 summarises most of what is known about the provincial banking companies and a combination of Boase2, Kerr3, Graham4 and Checkland5 will provide the highlights of the history of most of the others. However these sources also serve to expose the gaps in our knowledge, for if a firm is not listed in the indexes of these works, or if the references are scanty, then it is a fair assumption that little is known about the firm in question.
One of the most glaring gaps in our knowledge is the history of the Fife Banking Company. There is little on it in the works cited about and no entry for the bank in Wellings and Gibb6.
And yet its story deserves a wider audience. There were relatively few Scottish banking failures, although those few provided some of the most spectacular examples of banking collapse until we come to BCCI. Many collectors of Scottish banknotes have the impression that apart from Douglas Heron and the City of Glasgow, Scottish banking was a model of financial probity and stability and whereas scores of English banks failed in the crises of 1825/26, the Scots bankers survived relatively unscathed.
The facts are otherwise. And the happy discovery of a set of Court of Session papers relating to this firm has enabled us to put some flesh on the skeletal history that we have had until now.
The story commences at the start of the nineteenth century and is set in Cupar, the County Town of Fife which lies across the Forth to the north of Edinburgh. The northern part of the county, where Cupar sits, was and is predominately agricultural compared with the more industrial south where there were coalfields and fishing ports as well as linen and pottery manufacturing. The farmers of Cupar felt the want of a bank keenly for farming is an exceptionally seasonal business as far as cash flow is concerned and the lack of a bank made it difficult to arrange overdraft facilities to fund their working capital requirements or to raise funds to improve their land. A group of proprietors, farmers and other persons "interested in the prosperity of the county of Fife", therefore held a meeting in 1802 and it was resolved to enter into a Deed of Partnership to set up a local bank to meet local banking needs. The partnership was created for an initial period of 21 years, and the capital was to be £60,000 in 60 shares of £500, of which £250 was called up to give the bank a starting capital of £15,000.
Not perhaps by coincidence another bank, The Cupar Banking Company was founded in the town that same year. No doubt there were two rival factions among the citizenry but we lack any evidence of a 'banking war' and the Cupar Bank had an even shorter life than the Fife. The ultimate fates of the two Cupar banks amply justified the acerbic comment made by Scott-Montcrieff, the Joint Agent for the Royal Bank of Scotland in Glasgow, "I know of none in that quarter that has either money or sense to conduct a bank".7
In spite of the competition, the Fife Banking Company duly opened for business with George Aitken, a local "Writer" (to the Signet, a type of Scottish lawyer) being appointed to the post of cashier at the start of trading.
The bank soon flexed its financial muscles, opening branches in Kirkcaldy and Kerriemuir. In banking terms this was probably a good strategy as the industrial mix in these towns differed from that of Cupar, thus allowing the bank to spread its risk and take on a better balance of lending. Kirkcaldy would bring fishing accounts and Kerriemuir cattle and wool spinning (Cupar being predominately crop country). Additional branches would also bring new opportunities to put the Fife Bank's notes into circulation and to attract deposits.
Little is known about the Fife Bank's notes. Only a single issue of one pound notes is listed in Douglas8 but interestingly enough the note he chose to illustrate is signed in autograph by both Anderson and Aitken as Cashier and Accountant respectively.
The growth of the bank outlined above would, no doubt, have put an additional burden on Aitken, who was, remember, a practising lawyer. Ebenezer Anderson took up employment with the bank as a clerk in 1814 and James Craig was appointed as Accountant and Teller in 1816. When Craig died in office the following year, Ebenezer Anderson, who had become a partner (or shareholder) in 1816, was appointed Accountant and Teller in his place.
Such faith was misplaced. After the death of Craig in 1817, the books were not balanced until the partnership ended in 1823 and the cash was never reconciled during this period. Anderson submitted false accounts to the Directors and induced them to declare 'lavish' dividends. These never fell below 5% and reached 7.5% on one occasion whereas we now know that the bank incurred losses in every one of these years. Even before the final crash there was sufficient evidence of lax controls to alert any reasonably astute Director. For instance, when the first Kirkcaldy agent died, it was discovered that he had a deficit of £18,000 which was more than the bank's starting capital.
In 1822 the original partnership had decided to wind up affairs although a new partnership was created to assume its obligations so that the continuity of trading was maintained. The new partnership came into being in August of 1823 and was to carry on for five years. Although six of the old partners decided not to join the new partnership, the majority did so. Anderson and Aitken were appointed Joint Cashiers to the new bank.
With his status thus confirmed and enhanced, Anderson showed his true colours by, for instance, granting generous accommodation to his friends. However this might have been no more than a quid pro quo for their putting their names to bonds totalling £6,000 which the Cashiers put up to guarantee their good behaviour and financial probity.
For a bank in difficulty, the time honoured way to delay the day of reckoning was to borrow off their correspondent banks and increase the value of their notes in issue. Their banking agents were Thomas Kinnear & Sons in Edinburgh and Morland & Co in London. It was the Kinnears who eventually decided to urge settlement of 'a large balance'. When the bank was unable to meet this demand, their credit was effectively destroyed. Within a week, on 21 December 1825, the Fife Banking Company closed it doors. At the close it had £37,000 of notes in issue and their deposits totalled £110,000. There were 47 partners with unlimited liability for any deficiency.
There then appears on the scene the British Linen Bank and the National Bank of Scotland, with proposals for a joint rescue. It is not unreasonable to suppose that the bank had applied to these and perhaps other large banks for assistance in their time of need and therefore to assume that they knew something of the true position of the Fife Banking Company.
At a meeting of the partners (at which Anderson was not present) held on 12 January 1826 the two banks offered to assume the liabilities of the bank if the partners would sign a bond for £50,000 and raise £30,000 by means of a call of £500 per share. But the real sting was in the tail: a condition of the rescue was that the bank would relinquish its business in Cupar, Kirkcaldy and Kerrimuir. Within days the assets had been transferred to the trustees appointed by the British Linen Bank and the National Bank of Scotland. This swift action allowed them to retire the bank's outstanding notes and thus help to maintain the reputation of Scottish banknotes.
The trustees were Lindsay Mackersey and James Auchinleck Cheyne. Cheyne was both a Writer and an accountant and also on of the original directors of the National Bank. They commenced vigourous action to recover monies owed to the firm. One of their first actions was to dismiss Anderson. On searching his house, some £5,000 bills of post due (overdue and unpaid bills of exchange) were found. By the end of January, they had Anderson in prison for embezzlement, claiming £5,165.
However, their erstwhile Joint Cashier proved to be a wily opponent and he was well represented in the many court actions he faced. The legislation of a manager or principle officer if the conditions of the relevant Act had been complied with. One of these was the banking of regular returns and the first time the Fife Banking Company made a return under the Act was in July 1826, six months after they had failed. Anderson was therefore able to show that the bank could not competently sue him as they were attempting to do. The trustees then tried to sue him for non-payment of bills to which he had put his name. Every time a case came to court the bill was paid by a 'benefactor'. One Peter Walker paid £2,000 in one such action showing how much his 'friends' had at stake to keep him out of the hands of the court. Because they were unable to demonstrate any good reason to keep him in prison, Anderson was freed in spite of the fact that some £60,000 was missing from the bank.
Eventually the wheels of justice turned sufficiently for Anderson to be adjudged a debtor and 'put to the horn'. This was a peculiarly Scottish form of summary justice and involved the blowing of a horn at the mercat (market) across Edinburgh and the debtor was declared an outlaw. As such it became impossible for him to remain at liberty in Scotland and it is believed that he fled to America.
Litigation continued on the wake of the collapse until well into the 1850's and at least one of the actions was heard in a court serviced by Sir Walter Scott. At that time he was an undischarged bankrupt working to pay off his debts. But the year of the collapse was also the year that Scott published his famous series of letters under the pseudonym Malachi Malagrowther in support of Scottish banknotes. One of the main planks of his argument was that the stability of the Scottish banking system and the fact that noteholders so rarely lost out. In the case of the Fife Banking Company they certainly did not even though the eventual deficit of the firm was found to be £91,315. At the end of the liquidation only fourteen of the partners remained solvent after paying £5,500 per share in calls in addition to their original £500, but their sacrifice ensured that all the creditors were paid in full.
But the fact that the creditors did not suffer should not be adduced as evidence that the Scottish banking system was a sound one. When the Inspector of branches of the British Linen Bank examined the books of the bank he reported that [the officers of the Fife Bank had] "deceived them regarding the extent of their obligations and of the sums required to give effectual aid and relief".9 The British Linen Bank withdrew from the rescue leaving the field clear for the National Bank of Scotland who at least added the Kirkcaldy branch to their network for their pains.
1 C W Munn - The Scottish Provinicial Banking Companies - Edinburgh 1981
2 C Boase - A Century of Banking in Dundee - Edinburgh, 2nd Edition 1866
3 A W Kerr - History of Banking in Scotland - Glasgow, 4th Edition 1926
4 W Graham - The One Pound Note - Edinburgh, 2nd Edition 1911
5 S G Checkland - Scottish Banking, A History 1865-1973 - Glasgow 1975
6 F Wellings & A W T Gibb - Bibliography of Banking Histories, Volume 1 Domestic Banks - Kirkcaldy, 1995
7 S G Checkland - op. cit. p174 8 J Douglas - Scottish Banknotes - London 1975 p132 - Douglas states that the bank 'closed its doors' on 21 May 1829. Clearly it had effectively ceased to trade as a bank long before this.
9 C A Malcom - The History of the British Linen Bank - Edinburgh 1950 p101
Click here for a picture of a Fife Banking Company 20 shilling note.
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