Evasion of Peel's Act
Scotland used the same weapons as England, namely, the cheque and the development of deposit banking. The eight Scotch banks have, according to their latest balance sheets, £7,000,000 of notes outstanding, and £108,000,000 of liability on deposits and drafts. With regard to the latter item Peel's regulations had nothing to say, and since ordinary banking prudence demanded that some cash should be held against it, and since the gold held against notes was not specially earmarked as such, Scotch banking was able to treat its cash against deposits as the basis both of its notes and deposits and so produce the economy which is boasted of by its champions. The law says nothing concerning cash to be held against deposits, and the metallic basis of these is probably extremely slender, if the cash held against notes is set on one side; but it is impossible to detect its actual amount, since the Scotch banks include with their cash their balances at the Bank of England, etc. And the net result is, that when the proportion of its cash to its total liabilities on notes and deposits is worked out it is found to be decidedly low, even when compared with English practice. For the eight banks taken together, gold and silver coin, notes of other banks, cash at Bank of England, and cheques in course of transmission represent almost exactly 10 per cent. of their note and deposit liabilities.
It should be observed that the notes which the Scotch banks hold as till money do not appear in their statements, for until they are issued they are not a liability, and though they are treated by the banks in practice as an asset, they can not figure as such in a balance sheet. That they are practically treated as such is witnessed by Mr. Blyth, as quoted above, when he says that without them the banks would require to keep £8,000,000 or £10,000,000 of gold coin. And it is, of course, this habit of regarding unissued notes as a banking asset in the shape of till money that accounts for the low reserve of actual cash that the Scotch banks show.