Scottish notes would have been worthless in case of collapse

Published on Tuesday 24 November 2009 21:50

SCOTTISH banknotes would have been left worthless if a bank had collapsed at the height of the financial crisis, it has been revealed.

A little-known banking regulation rubber-stamped by the House of Lords has finally given Scottish notes the same legal protection as English money.

The government has confirmed that before the passing of the Scottish and Northern Irish banknote order there was no "safety net".

Both HBOS and Royal Bank of Scotland came close to collapse during last year's banking crisis, raising the prospect of Scottish notes becoming worthless overnight.

Lord George Foulkes, who helped guide the new regulations through the House of Lords,

said: "Before this order was passed there was no protection for Scottish banknotes, as there has always been for Bank of England notes.

"That meant in the case of the collapse of a Scottish bank, their notes would have been worthless.

"The passing of the new regulations should be a cause for celebration. For the first time our Scottish banknotes are afforded the same legal protection as English notes."

The new regulations are contained in the Banking Act 2009.

They were approved by the House of Lords on 9 November after being steered through the house by Labour's Lord Davies of Oldham.

The new rules require note- issuing banks, such as RBS, Bank of Scotland and the Clydesdale Bank, to have "ring-fenced" assets to ensure the protection of noteholders.