Founded | 1769 |
---|---|
Defunct | 1772 |
Headquarters | Ayr, Scotland |
Douglas, Heron & Company, also known as the Ayr Bank, was a Scottish bank with its head office at Ayr. It opened in November 1769 and folded in 1772 during the crisis of 1772.
The nominal capital of the company was £150,000 or £160,000, of which £96,000 was immediately subscribed. However, no more than 80% of the capital was ever subscribed. There were 131 original partners, including Patrick Heron of Kirroughtree, the Earl of Dumfries, the Earl of March, and Sir Adam Fergusson of Kilkerran. Many of the partners were substantial landowners, such as the Duke of Buccleuch, the Duke of Queensberry, and Archibald Douglas, 1st Baron Douglas. The bank was established under a contract of co-partnery, so the partners were not protected by limited liability. This made the bank seem very secure, because its deposits were backed by the partners' land as collateral.
The bank granted many loans to favoured customers and soon had to issue bank notes to cover its position. By June 1772 the bank had issued £1.2 million through advances and bills of exchange, around two thirds of the currency of the Scotland.
Douglas, Heron & Company relied for credit on the London bank Neal, James, Fordyce and Down, which collapsed in the crisis of 1772. Heavily in debt and unable to meet demands for cash on its banknotes, the bank was forced to close on 25 June 1772. 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 extortionate. Subsequent approaches to Bank of Scotland and the Royal Bank were rejected. The bank managed to reopen for a brief period between September 1772 and August 1773, but a general meeting of the partners held on 12 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 in 1778. Key reasons for the Bank's collapse included excessive granting of credit, and a lack of central control. Each branch was effectively independent of head office and had its own board of directors. The report also cited gross misconduct: "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".