The closure of Airdrie Savings Bank

Airdrie Savings Bank

Jeremy Peat OBE

Jeremy Peat
Visiting Professor, International Public Policy Institute

27 January 2017 

The Sad Demise of a Splendid Institution

It came as a huge shock to many who had worked within the Scottish financial sector in recent decades to hear of the demise of the Airdrie Savings Bank (ASB). This bank had been with us for so many years and survived through world wars and then the trauma of 2008 and all that. Now it is being wound up – the last Scottish savings bank. Truly this marks the end of an era.

The ASB survived the financial crisis while so many others suffered and failed. It did so while being run by a board of unpaid volunteers – no big bucks at the ASB. These board members wisely shunned the risks that others grasped and simply looked after their members’ interests. Post-crash there was hope of minor expansion and continuation for many more decades of a service for the local community.

Now we know that is not to be and in his blog below Professor Charles Munn, the ASB’s official historian, sets out what went wrong in the sector and for the bank. We live in a different and poorer financial world following the ASB’s demise.

Charles Munn Professor Charles W Munn, OBE, FCIBS
Writer of books on Company History:
Clydesdale Bank, Airdrie Savings Bank, Alliance Trust, Scottish Provincial Banking Companies

Airdrie Savings Bank 1835-2017 

When it was announced in January 2017 that the Airdrie Savings Bank was to close a sense of shock and disbelief passed through the local community. After all, this was a savings bank that had been established in 1835, served its local communities for 182 years and survived the recent financial crisis without any difficulty.

When the Chancellor of the Exchequer, Alastair Darling declared that what we needed in the UK were ‘boring banks’ he could well have been referring to the Airdrie Savings Bank. It had eschewed any involvement in the more casino type activities indulged in by larger institutions and stuck to its local roots and original ethos.

Its origins were in the savings bank movement begun in Scotland in 1810 and when, following the Page Report on National Savings in 1973, most other savings banks merged into other organisations, the Trustees of Airdrie Savings Bank chose to remain independent. It was, at that time, a wise decision. From time to time it was approached by other organisations about the possibility of a merger and invariably the answer was no.

It was always managed by canny bankers of the old school. Yet there were signs more than 20 years ago that they recognised that its modest size might present challenges in the years ahead. Their response was to embark on a limited expansion of the branch network. They also invested heavily in technology in the recognition that they worked in a competitive environment and that they had to provide a range of services that was similar to what was offered by the big banks.

In 2010 the Bank celebrated its 175th anniversary with a number of events (including a Royal visit) and the publication of its history      (Charles W Munn, Airdrie Savings Bank: A History). The Trustees, who were all local businessmen and women, faced the future with guarded confidence. Senior staff advised them that they would face a low interest rate regime for several years and that this would impact on their profitability as it narrowed the margin between interest paid on deposits and interest received on loans. It would also lead to lower returns on the bank’s traditional safe investments. One consequence was the necessity for a cost saving exercise that began in 2009. Opportunities for revenue enhancement in a depressed economy were non-existent. The shrinking housing market impacted severely on lending, especially on bridging loans in which Airdrie Savings Bank had developed something of a speciality

There were also the large costs of being in the LINK ATM system and the Visa debit card scheme to be met. These were substantial amounts of money but there was no alternative. Customers expected their bank to provide a range of services that included the ability to obtain cash from any LINK machine in any part of the country. There was no concession to the fact that they had their accounts in a local, bank with a limited branch network. Nor was there an opportunity to copy the business model of the rapidly growing Credit Union movement which had a very limited range of services. Moreover the much-heralded ‘cashless society’ had yet to emerge.

The new regulatory regime, imposed after the financial crisis, also brought heightened costs without any offsetting revenue. We cannot know the detailed figures but we can speculate that the new rules, regulations and reporting requirements incurred costs in money and manpower in excess of what had been paid under the old regulatory system. It is also in the realms of speculation that these costs fell disproportionately on Airdrie Savings Bank and that they were not proportionate to the size of the bank, its range of services or of its risk profile. It is tempting to reach the conclusion that Airdrie Savings Bank has suffered because of the sins of the big banks.

In addition the regulators enforced changes to the Board of Trustees. Out went most of the local business people to be replaced by a, still unpaid, board of accountants, bankers and lawyers.

Faced with a long-term low interest rate regime, a relatively inflexible cost base and heightened regulatory requirements the Trustees came to the decision to close the Bank. It did not fail. Its balance sheet is robust. It will be wound down in a controlled manner with its lending book transferred to TSB.

In the Trustees own words.

‘Whilst we are financially strong, a comprehensive strategic review of all future options concluded that - as a very small bank - we will not have the resources in the years ahead to provide the products and services our customers need in an increasingly digital world.  The Board and Executive Team have therefore, taken the difficult decision in the best interests of our customers to close down our accounts and ask our customers to move to an alternative banking provider.’