27 Nov /14


The Royal Bank of Scotland was founded in 1727. One year later it granted the first overdraft. The overdraft was given to William Hog who had problems with his clients paying on time. The overdraft was for GBP 1,000 and interest of 5% a year was charged – the maximum allowed under British law at the time. Of course William Hog had to have a couple of guarantors, but there was no other security. The idea was very successful and was one of the big factors in the early growth of the bank which generated customers and allowed better used of shareholder funds.

Later the overdraft was described as “one of the most ingenious ideas that has been executed in commerce”.

Even before this, the first overdraft was officially granted, the general idea was known in English. In 1710, Joseph Addison (politician, playwright, magazine publisher who brought into English words such as disappearance, egoist, idiomatic, critique ) wrote a letter about borrowing money and hoped that he would not “over-draw my effects with you”, i.e. lose face, as a result.

Once in place, the overdraft was certainly known by the relatively wealthy. The Irish philosopher, George Berkeley gave us the words a priori, national bank and materialism. He certainly knew about the financial inventions for six years after the first overdraft, he wrote that he hoped a big payment had been made, “Otherwise I have overdrawn” a priori, national bank and materialism.