Royal Bank of Scotland
The Royal Bank of Scotland (RBS) is a major public bank based in Edinburgh, Scotland, and is among the largest banking institutions in the UK. Established in 1727, RBS grew significantly over the centuries, notably acquiring around 250 banks, including the National Westminster Bank in 2000, which solidified its prominence in the UK banking sector. By 2022, RBS provided services to over 3.3 million customers across the UK, Europe, Asia, and the United States, employing approximately 61,000 individuals.
However, RBS faced severe challenges during the 2008 global financial crisis, leading to the largest bank bailout in history, where the UK government invested £45 billion, resulting in majority public ownership. The fallout included numerous scandals related to its practices during the crisis, including fines for manipulating interest rates and foreign exchange markets. In the subsequent years, RBS underwent significant restructuring to restore its reputation and stabilize its operations. Despite its tumultuous history, RBS continues to operate as a key brand under the NatWest Group, striving to regain public trust and navigate the complexities of modern banking.
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Royal Bank of Scotland
- Date founded: 1727
- Industry: Financial services
- Corporate headquarters: Edinburgh, Scotland
- Type: Private
The Royal Bank of Scotland, or RBS, is a privately owned subsidiary of NatWest Group headquartered in Edinburgh, Scotland. Before the 2008 financial crisis, a severe economic downturn that lasted from late 2007 to mid-2009, it was one of the largest banks in Scotland and the United Kingdom. In the 2020s, the NatWest Group served over 19 million customers with a workforce of over 70,000 people.
The Royal Bank of Scotland was established in 1727, becoming Scotland's second bank. Throughout its centuries-long history, the financial institution acquired about 250 other banks. Its acquisition of the National Westminster Bank in 2000 propelled the Royal Bank of Scotland to prominence in the United Kingdom. In addition to NatWest, the Royal Bank of Scotland's brands in the early 2000s included Ulster Bank, Isle of Man Bank, Holt's Military Banking, and Lombard. The bank also included brands that were older than the bank itself, including Child & Co., Coutts (closed in 2022), and Drummonds.
The bank's purchase of the Dutch bank ABN Amro in 2007 set off a downward spiral for the storied institution, which incurred significant losses from the deal. During the 2008 global financial crisis, the Royal Bank of Scotland was on the brink of collapse when it received the biggest bank bailout in history. The UK government spent £45 billion in taxpayer funds to rescue the institution, putting a majority stake of the bank into public ownership. After the bailout, the Royal Bank of Scotland experienced multiple scandals relating to its misdeeds during the financial crisis.
In 2020, the Royal Bank of Scotland was rebranded as NatWest Group, though the RBS "daisy wheel" logo and name continued to be used in a limited capacity.
History
The Royal Bank of Scotland was formed in the wake of tragedy. In 1695, a group of Scottish investors formed a trading colony in Panama’s Darién province. The endeavor failed, resulting in two thousand deaths and costing Scotland part of the country's wealth.
When Scotland agreed to unite with England to form Great Britain in 1707, the terms compensated Scotland for the Darién colony losses. The company managing the payments realized there was leftover money that could be invested and petitioned King George I to start a bank. The Royal Bank of Scotland received its royal charter in 1727 to operate in Edinburgh.
The following year, the bank performed the first overdraft, an extension of credit, when the customer's withdrawal is greater than the money in the account. Overdrafts became a standard banking procedure.
The bank entered a rivalry with the Bank of Scotland, the country's first bank, which lasted into the 1740s. The two institutions tried to force each other out of business through the "note wars." Each bank collected the other's banknotes and used them for payment in large quantities. Both banks survived the financial showdown.
During the late eighteenth and nineteenth centuries, the Royal Bank of Scotland methodically expanded. In 1783, the institution opened its first branch office in Glasgow, a manufacturing hub during the Industrial Revolution. In 1836, the bank opened six new branches across the country. The bank completed its first acquisition of Dundee Banking Co. in 1864. Ten years later, it opened its first branch in London.
The Royal Bank of Scotland rose in stature during the twentieth century as it embarked upon significant growth. In 1939, the institution bought London bank Glyn, Mills & Co., which owned Holt's and Child & Co. During the 1950s and into the following decade, the bank launched new services such as mobile banks and drive-throughs. In 1960, it opened its first international office in New York.
In 1969, the Royal Bank of Scotland underwent its most sweeping change yet, merging with the National Commercial Bank of Scotland. After the merger, the company adopted its signature logo, the daisy wheel. The logo is made up of four arrowheads pointing inward to form a circle.
The merger created a holding company to oversee the other bank's brands. In 1970, the three main brands came together to form Williams & Glyn's Bank. In 1985, the Royal Bank of Scotland and Williams & Glyn's Bank merged, trading as one bank under the Royal Bank of Scotland name.
At the end of the twentieth century, the Royal Bank of Scotland continued its upward trajectory. In 1988, the bank established a foothold in the United States, acquiring the Citizens Financial Group. The institution also devised Britain's first fully functional Internet banking service in 1994.
In 2000, the bank transformed itself into one of the United Kingdom's top financial institutions through its biggest acquisition yet. The Royal Bank of Scotland purchased the National Westminster Bank for £21 billion, adding to its diverse holdings. The company's parent group, The Royal Bank of Scotland Group, became NatWest Group in 2020, serving countries across the globe. The Royal Bank of Scotland remained a brand under the NatWest Group.
Impact
After its remarkable ascent, the Royal Bank of Scotland experienced a drastic reversal of fortune in the early twenty-first century. The bank lost its private status, and its financial practices became a magnet for misconduct allegations.
In 2007, the bank sought to enter the global financial stage by purchasing the Netherlands' largest bank, ABN Amro. Under the chief executive officer Fred Goodwin, the £48 billion, grossly overvalued deal overstretched the institution's finances.
A year later, the global financial crisis hit hard. The credit crunch squeezed banks around the world. On October 7, 2008, the Royal Bank of Scotland teetered on the edge of insolvency. The bank's potential collapse threatened to drag down the UK economy, so the government stepped in to rescue the institution. The massive £45 billion bailout gave the government an 83 percent stake in ownership. In 2015, the government sold 5 percent of its stake, maintaining 73 percent of taxpayer ownership.
After the bailout, the Royal Bank of Scotland underwent major organizational restructuring, which included ousting Goodwin, trimming costs, and cutting jobs. A 2011 government report blamed the bank's failure on bad strategic decisions.
The Royal Bank of Scotland drew reproach for its actions in the aftermath of the financial crisis. In 2013, the institution was fined £390 million for manipulating the LIBOR rate, the lending interest rate between banks on the London money market. A year later, the bank was slapped with another fine for rigging foreign exchange markets between 2008 and 2013. In 2016, leaked documents revealed the Royal Bank of Scotland destroyed small businesses to boost its profits during the financial crisis. The following year, the bank agreed to pay £4.2 billion to US regulators to settle claims of fraudulently selling mortgages.
In the wake of the bailout, the bank reported annual losses between 2008 and 2016. The once formidable institution, under the leadership of chief executive officer Ross McEwan, sought to regain its footing and rebuild public trust. In 2024, RBS announced intent to close eighteen of its eighty-six branches across Scotland, which would result in a loss of 105 jobs.
Bibliography
Orbell, John, and Allison Turton. British Banking: A Guide to Historical Records. Routledge, 2017.
Rayner, Gordon. "Banking Bailout: The Rise and Fall of RBS." Telegraph, 20 Jan. 2009, www.telegraph.co.uk/finance/newsbysector/banksandfinance/4291807/Banking-bailout-The-rise-and-fall-of-RBS.html. Accessed 9 Jan. 2025.
"Royal Bank of Scotland to Close a Fifth of Branches." BBC, 17 Apr. 2024, www.bbc.com/news/articles/cp3gvmvn2yyo. Accessed 21 Jan. 2025.
"Royal Bank of Scotland Plc." NatWest Group, www.natwestgroup.com/heritage/companies/the-royal-bank-of-scotland-plc.html. Accessed 9 Jan. 2025.
Shand, David. "RSB: Bank to Pay £4.2bn Fine over US Mortgage Scandal—with More to Come." Express, 13 July 2017, www.express.co.uk/finance/city/828005/RSB-US-mortgage-fine-bonds-mis-selling-Royal-Bank-of-Scotland. Accessed 9 Jan. 2025.
Treanor, Jill. "RBS Preparing to Cut Nearly 900 IT Jobs, Says Union." Guardian, 15 Aug. 2017, www.theguardian.com/business/2017/aug/15/rbs-cut-it-jobs-london-unite. Accessed 9 Jan. 2025.
Treanor, Jill. "RBS Sale: Fred Goodwin, the £45bn Bailout and Years of Losses." Guardian, 3 Aug. 2015, www.theguardian.com/business/2015/aug/03/rbs-sale-fred-goodwin-bailout-years-of-losses. Accessed 9 Jan. 2025.
Treanor, Jill. "Royal Bank of Scotland: From Bailout to Selloff." Guardian, 3 Aug. 2015, www.theguardian.com/business/2015/aug/03/royal-bank-of-scotland-from-bailout-to-sell-off-rbs. Accessed 9 Jan. 2025.
Treanor, Jill. "Turn RBS into a Building Society Says Co-Op Party Chief." Guardian, 11 Dec. 2016, www.theguardian.com/business/2016/dec/11/turn-rbs-into-a-building-society-says-co-op-party-chief. Accessed 9 Jan. 2025.