Wow. No seriously, WOW. After the first Treasury paper on currency options for an independent Scotland I knew any other stuff they trotted out would be at least as annoying, but with the “Scotland analysis: Financial services and banking” paper they’ve really outdone themselves.
So lets start with the basics – in the executive summary they say “The Scottish banking sector would be exceptionally large compared to the size of an independent Scotland’s economy, making it more vulnerable to financial shocks than it is as part of the larger UK…. Scottish banks have assets totalling around 1254 per cent of an independent Scotland’s GDP”. They continue by noting “The banking sector in an independent Scotland would be dominated by the two largest banks – the Bank of Scotland and the Royal Bank of Scotland (RBS).”
Hmm. Can you spot the deliberate mistake there, can you? No? Here’s a clue – Bank of Scotland (BoS) merged with the Halifax to form HBoS in 2001. This was followed by a campaign to keep the HBoS HQ in Edinburgh, because well it wasn’t really a Scottish bank anymore. Then HBoS was taken over by Lloyds TSB in 2009 and is now a wholly owned subsiduary of the Lloyds Banking Group. There are, I’m sure, various Scottish registered Bank of Scotland related legal entitites, but there is no Bank of Scotland in an especially meaningful sense; other than as a brand, it is dead, it has ceased to exist.
So yeah, sure RBS and BoS dominate Scottish banking markets, but if Bank of Scotland went phut howz that a Scottish problem? And the assets to GDP ratio is presumably utter tosh as well due to this (?). And and, lets be clear the bulk of “Scottish” bank assets are outside Scotland, like if RBS went phut the day after independence this would be an issue for the rest of the UK as NatWest savers and borrowers shat themselves in a cross-border bank crash lets learn from the Fortis example prompting new legislation/arrangements for managing bank failures kind of thing.
Now mebbe the paper recognises this because it does refer to how much the RBS bail out cost, but not the HboS related Lloyds one. Or mebbe it doesn’t because then it talks about how “First, if the large bankS (emphasis added) made no changes to their group structure and kept their existing headquarters, an independent Scotland would have an exceptionally large financial sector”. Err, why the plural? As it’s a wholly owned subsiduary HBoS i.e. BoS is already headquartered in London. Or perhaps its the Clydesdale they’re talking about, except that’s owned by the National Australia Bank headquartered in Australia of course. Handelsbanken is certainly growing its Scottish operations, but again I’m not convinced its especially Scottish.
It’s a shame this isn’t clarified because then the paper talks about how “where large firms are faced with greater concentration or risk they may look to diversify or restructure themselves for example so that they were no longer headquartered in Scotland. If this were to happen it could undermine Scotland’s current status as an important financial centre”. Now, this confused me because other than RBS – singular - I couldn’t work out which “firms” they were talking about. Plus, with RBS, lets be honest, yeah sure the retail bank has big offices here along with group functions, but dear gawd they’ve got lots of people already based in London. Like in corporate banking, Scotland has been no more than a regional sales outpost comparable to say its Birmingham corporate centre for years now. And as for the head office stuff, a big factor is simply sunk costs and labour costs i.e. the offices are already there and Scottish labour is relatively cheap, things independence won't do do-hickey about
Am guessing the authors didn’t clarify this because they wanted to go off on one instead with stuff like “Scotland and the rest of the UK benefit from a large domestic market in financial services with no restrictions on buying and selling financial products across the UK. The Scottish financial services industry estimates that 90 per cent of its customers are located in the rest of the UK, and the market is highly integrated for most financial products”.
I guess, except, what are they actually saying here, like would the one remaining big Scottish bank no longer have access to English markets? Seriously? Like would independence prompt a car insurance trade war? OK, if that’s the case then stop implying and start stating – if Scotland votes for independence, then the UK Treasury view is that Scottish financial services providers would no longer be able to sell into English markets (Oh and lets just leave the example of Santander, that lovely British high street, I mean Spanish calle, institution out of it).
Ahh, but we need to think about bank regulations because “There is currently a single regulatory framework covering the whole of the UK, but this could not continue if Scotland became a separate state. “ I guess, except a dual approach has already been in operation for centuries now when it comes to banks and the law because of that cheeky wee thing called the Scottish legal system. Hence, when they start out Scottish bankers learn about taking security over a company’s assets via a bond and floating charge whereas English ones talk about mortgage debentures.
Back to risk though; “Creating an international border would reduce financial firms’ ability to spread risk, and potentially drive up the cost of nancial products for Scottish household” – well yes it certainly would if the UK Treasury is seriously claiming a firm headquartered in an independent Scotland would be locked out of England post ballot results. Thankfully, RBS ALREADY HAS exposure to overseas climes including the US via its Citizens Bank subsiduary i.e. WTF are they talking about with this “spread risk” tosh?
I wonder if they’re just blinded by how good they think they are as when they say “The competitiveness of Scotland’s financial sector is aided by its location within the UK. Industry and international bodies view the UK as a strong tax and regulatory regime, building customers’ and partner organisations’ trust in UK financial firms. The Global Financial Centres Index (GFCI) rates London as the most competitive international financial centre, scoring particularly strongly on regulation and the quality of people. International investors know and value the fact that large financial firms based in Scotland will share the City of London’s UK-wide regulatory framework, in which banks are overseen by the Bank of England under UK law. “
I guess, I mean as I understand it AIG blew itself up multi-multi billion style doing trades out of its London office it couldn’t have got away with in the US due to London’s lax regulation. That aside, what the AIG example – along with the hundreds of foreign banks with London offices - really proves is so utterly fucking what? You don’t need to be part of the UK to have London based banking operations regulated by the City of London and so on.
So yet again, rather than provide any particular insight or meaningful analysis, the UK Treasury's contribution to the independence debate is to shit out some disgraceful, tax payer (English, Welsh, Northern Irish and Scottish) funded propaganda. I mean come on, it doesn’t even appear to get the basic facts right, it engages in dumb scare-mongering by implying some kind of post-independence trade war/financial services isolation, it ignores how financial firms not headquartered in London are already key to the UK financial services sector (and post governmental politicial careers/personal fortunes) and insultingly fails to even acknowledge the existing legal differences between Scotland and England (and Wales) that have been integral to the business of UK banking for hundreds of years.
P.S. A thing that always struck me about RBS was its commitment to being Scottish, something that helps explain why say Tom McKillop was made chairman prior to it imploding. Its ironic that Mr Fred Goodwin’s legacy now appears to be being used as an argument against independence.