AS RBS publishes its results, it is perhaps opportune to recall that the “Scottish banking crisis” – a subject of hot debate in the referendum campaign – originated in the failure of the UK government to adequately regulate the banking sector, which, of course, is international in scope as were the banks involved.
Some commentators seem to forget that it matters not where a bank has a brass plate inscribed with the words “headquarters”. What matters is where its financial operations have gone wrong and the extent of the risk of contamination.
That is why Barclays Bank, headquartered in London, was bailed out to the tune of £552.32 billion by the US Federal Reserve, with a further £6bn coming from the Qatar government. The public was repeatedly told at the time that “Barclays didn’t need a taxpayer bailout”. But, in fact, the English-based Barclays Bank received the single biggest “bailout” of any UK bank.
Now why did the US Federal Reserve come to Barclays’ rescue?
Well, because banks are not bailed out primarily by the government of the country hosting their brass plaque.
They are bailed out on the basis of where they have business activities, the demise of which would lead to contagion in the local financial system. They are not, therefore, bailed out by the taxpayers of the country in which they are headquartered.
It is worth noting that the UK government bailout of RBS and HBOS amounted to £65bn. In addition, the US Federal Reserve made emergency loans available to RBS of £285bn and to HBOS of £115bn. So the US helped to bail out these UK banks too, in the same way as Scottish taxpayers contributed to the liquidity support for international banks based in London, including American ones.
But could an independent Scotland have afforded our contribution to that bailout? According to St Andrews University professor Andrew Hughes-Hallett, “the cost of Scotland’s contribution to the bank bailout as an independent country would have been roughly the same as it actually was as part of the UK – roughly 10 per cent”.
All of which ignores the question of whether a regulatory system with direct Scottish influence would have ever allowed RBS and HBOS to over-leverage their balance sheets to the extent they did in the first place.
East London Street