Scotland’s economy risks being “destabilised” by its own financial sector in the event of a Yes vote, according to a warning issued today that draws parallels with Iceland, which had to be bailed out by the International Monetary Fund (IMF) after the 2008 collapse of its banking industry.
In a report that also shows HSBC is the only British lender among the top ten of the world’s 1,000 largest banks, international finance publication The Banker said Scotland would have been “devastated” if it had been an independent country during the financial crisis.
According to its calculations, UK banks have a total of $9.9 trillion (£5.8tn) in assets, about four times the size of the British economy. In comparison, Germany’s lenders have assets of three times its GDP.
If Scotland became independent and assumed responsibility for Scottish-headquartered groups such as Clydesdale, HBOS and Royal Bank of Scotland, The Banker said it would have banking assets of 12 times Scottish GDP. That is larger than the 10:1 ratio that proved “ruinous” for Iceland, where the IMF agreed a $2.1 billion emergency loan almost six years ago when the value of its currency collapsed after the failure of its banks.
Editor Brian Caplen said: “Had it been independent during the financial crisis, there is little doubt that Scotland would have been devastated and forced to turn to the IMF for help.
“The temptation in future under independence would be to give Edinburgh ‘light touch’ regulation to make it more competitive as a financial centre. This might have serious consequences.”
However, a spokesman for the Scottish Government said The Banker’s data was “outdated” and insisted Scotland’s financial services sector accounts for about 7 per cent of the country’s economy.
He added: “The figures quoted in this report artificially inflate Scotland’s financial assets by assigning investment banking activity which takes place almost exclusively in London to Scotland, and by failing to take account of both the recent reforms to the financial services sector and the deleveraging of institutions following the UK financial crisis.
“Independence would create the opportunity for Scotland to pursue a more productive, resilient and fairer economic model that delivered long-term sustainability and economic opportunity for all.
“We have been clear that Scotland will play a full part in protecting the financial system on these isles. Policies for financial stability will be conducted on a consistent basis across the sterling area, with the Bank of England continuing to set macroprudential policy and identifying systemic risks.”
The subject of independence and its implications for the finance industry will be the subject of a debate to held in London tomorrow, organised by Scots law firm Tods Murray, which said the City is “waking up” to the possibility of a Yes vote in September’s referendum.
Speaking ahead of the event, Stewart Hosie, the SNP’s Treasury spokesman at Westminster, said independence would give Scotland’s financial sector “the best of both worlds”, enjoying easy access to London and a shared currency but having its own powers to attract more business.
However, deputy Liberal Democrat leader Sir Malcolm Bruce MP argued that uncertainty over any currency partnership with the rest of the UK means “separation will weaken the City and the Scottish financial sector alike”.