Douglas, Heron and Company

Collection consists of one banknote plus one bundle of miscellaneous papers relating to the setting up of the Company, and its demise in the 1770s.

Douglas, Heron and Company, more commonly known as the Ayr Bank, was founded by a contract of co-partnery in 1769, and began business in November that year. The nominal capital of the Company was £150,000, of which £96,000 was immediately subscribed.

Many of the 131 original partners were substantial landowners based in the south-west of Scotland, and included the Duke of Buccleuch, the Duke of Queensberry, and Archibald Douglas the Earl of Dumfries. It has been estimated that the combined wealth of the founding partners was between £3 to £4 million (around £200 million today). This made the Company seem very secure. But there were problems right at the outset, which foreshadowed the crisis to come. None of the partners had much practical banking experience and under the terms of the co-partnery, none were protected by limited liability.

From the beginning, Douglas, Heron and Company undertook a doubly risky strategy: rapid expansion and the provision of large amounts of credit. At the time the Ayr Bank was formed, the two main public Scottish banks, the Bank of Scotland and the Royal Bank of Scotland, were unwilling to make large advances in the increasingly speculative conditions of the late 1760s. Douglas, Heron and Co. stepped into the void.

The Ayr Bank's Head Office was located in the Sandgate in Ayr, and branches were established at Dumfries and Edinburgh. The Company also set up agencies at Glasgow, Inverness, Inveraray, Kelso, Montrose and Campbeltown. The main function of these agencies was to promote the circulation of Ayr Bank notes, substituting them for those of rival banks. By 1772, notes of the Ayr Bank constituted close to two-thirds of the total Scottish note issue.

Further consolidating its rapid growth, Douglas, Heron and Co. purchased two smaller banks based in south-west Scotland in 1771: John MacAdam and Company (also known as the Ayr Banking Company), and Johnston, Lawson and Company (the Dumfries Bank).

As time went on however, problems in the Company's lending arrangements began to emerge. Many of the Ayr Bank's advances had, in effect, become permanent loans. The Bank attempted to cover the loans with short-term borrowing on the commercial money market. It embarked on what Sir William Forbes described as 'the ruinous mode of raising money by a chain of bills on London.' Matters were not helped by the fact that the managers attempted to hide the true situation of the Company's affairs from the shareholders.

Ultimately the collapse of Douglas, Heron and Co. was precipitated by the failure of the London-Scottish banking house Neale, James, Fordyce and Downe in June 1772, which had extensive connections with the Ayr Bank. Heavily in debt and unable to meet demands for cash on its banknotes, the Ayr Bank was forced to close its doors on 25th June. The Dukes of Queensberry and Buccleuch, along with the Earl of Douglas and the Earl of Heron approached the Bank of England to try to secure loans on the security of their lands. The Bank of England offered £300,000, but the terms were considered too severe. Subsequent approaches to Bank of Scotland and the Royal Bank were rejected.

The Ayr Bank managed to reopen for a brief period between September 1772 and August 1773, but a general meeting of the partners held on 12th August decided to dissolve the Company permanently.

In July 1776, the partners of the Ayr Bank met to form a committee to conduct an inquiry into the Company's failure. Their report - Precipitation and Fall of Messrs Douglas, Heron and Company, Late Bankers in Air with the Causes of their Distress and Ruin - was completed in August 1777 and published the following year. Key reasons for the Bank's collapse included forced and inflated circulation of currency, profuse and injudicious granting of credit and a lack of central direction - each branch was effectively independent of head office and had its own board of directors. The report also cited gross misconduct:

Imprudent, or erroneous management alone, could not have produced such destruction… we are sorry to say, that our misfortune has in a great degree been occasioned… by an open disregard, not only of the principles of the Copartnery, but of the express and positive rules and regulations laid down for the conduct of Managers…

The winding up of the Company, which had begun in 1773, took 20 years to complete. At this point all the records of the Ayr Bank were transferred into the custody of the British Linen Company. They were 'still in the vaults' when John Buchanan compiled his list of Scottish banks in 1862. What became of them thereafter, however, is a mystery.

Access is by appointment only, and at the discretion of the Archivist. Closure periods apply to some records less than 100 years old. Please e-mail archives@lloydsbanking.com for further information.

Item level catalogue available - please e-mail archives@lloydsbanking.com for further details.

Copying of material is permitted at the discretion of Lloyds Banking Group Archives.

GB1830 BOS/2/5/1/4 - Letters from the Royal Bank of Scotland to the Bank of Scotland concerning the Ayr Bank and other provincial banks.

GB1830 BOS/4/12/5/3 - Bank of Scotland Register of Bonds 1755-89, including those of Douglas Heron & Co.

GB1830 MEL/1 - Observations on Banking and Currency by George Home.

GB1830 HUN/6/6 - Discharge by George Home, Manager for Douglas, Heron and Company to the Trustees of William Logan Esq.

GB1830 SBM/1/2 - Minutes of the Meetings of the Bank of Scotland and the Royal Bank of Scotland, 1765-1820.

GB1830 BOS/1/2/1/4 - Bank of Scotland minutes, 1762-1779 - see especially June 1772-June 1775.

List of Partners, Ewart Library, Dumfries.

Dumfries Burgh Chamberlain Account Book, Dumfries Burgh Archives.

Fettercairn Papers, outline history of the Ayr Bank (Acc.4796 2nd series, Box 54), National Library of Scotland.

• Precipitation and Fall of Messrs Douglas, Heron and Company, Late Bankers in Air with the Causes of their Distress and Ruin investigated and considered by A Committee of Inquiry appointed by the Proprietors, (1778).
• F. Brady, 'So Fast to Ruin: The Ayr Bank Crash', Collections of the Ayrshire Archaeological and Natural History Society, 11 (1973) pp.27-44.
• S. G. Checkland, Scottish Banking A History, (1975).
• Sir John Clapham, The Bank of England A History , Vol 1 1694-1797 (Cambridge University Press, 1944) [See Chapter 7].
• T. M. Devine, The Tobacco Lords: A study of the Tobacco Merchants of Glasgow and their Trading Activities c.1740-1790, (Edinburgh, 1975 and 1990).
• Sir William Forbes, Memoirs of a Banking House, (repr. 1859).
• H. Hamilton, 'The Failure of the Ayr Bank, 1772', Economic History Review, 2nd Series, 8 (1956) pp.405-17.
• Tom Karrlander (Department of Economic History, Stockholm University), 'Douglas Heron and Company, Bankers in Air (Ayr Bank), A bank crash in Scotland in 1772' (unpublished paper, 2005).
• A. W. Kerr History of Banking in Scotland, (1st ed. 1884; 2nd ed. 1908).
• Charles W. Munn, The Scottish Provincial Banking Companies 1747-1864, (Edinburgh, 1981).