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.
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