In 1772 Douglas Heron & Co, more popularly known as the Ayr Bank, after the town where its head office was located (aptly spelt “Air” in some contemporary documents), went spectacularly bust.
It had been formed only three years before, backed by some of the largest landowners in Britain, and had used this seemingly solid foundation to expand rapidly.
Using a mixture of discounted bills and cash borrowed from the London money markets, it quickly became one of the largest banks in the country. Its collapse bankrupted dozens of its shareholders and cast a black cloud over the Scottish economy for decades.
In 1878 the City of Glasgow Bank . . . but you get the picture by now. A seemingly solid bank, which had grown much faster than its rivals, suddenly failed, triggering a chain of bankruptcies among its shareholders and creditors.
Stories such as that of Ayr Bank and the Western Bank of Scotland have been familiar to a small band of academics brave enough to specialise in financial history, but they are seldom taught as cautionary tales in business schools or economics faculties and are practically unknown in the City of London or on Wall Street.
