Wendy Alexander: Support the financial services essential to Scotland's economy

AT ITS peak the cost of underwriting Scotland's two major banks RBS and HBOS/Lloyds exceeded £470 billion – more than 13 times the annual Scottish Government budget – and more than three times the entire output of the Scottish economy.

This eye-watering sum was part of the international operation to prevent the global financial infrastructure from imploding, and these broader aims appear to have been achieved.

But what of Scotland's own interests such as the flow of credit to businesses and families, and the condition of its financial services industry? Evidence gathered during the parliament's economy committee examination of the future for Scotland's financial services revealed a mixed picture.

According to the Scottish Government's Access to Finance Survey, viable businesses are struggling to get credit. One factor in this is the absence of competition in business banking. The Office of Fair Trading estimated that following the Lloyds/HBOS merger, Lloyds and RBS would account for around 75 per cent of small business lending in Scotland.

This is a dangerous degree of concentration, but the Scottish Government steadfastly refuses to call on the OFT to initiate an investigation into Scotland's business banking services. It has also failed to make any representations to the European Commission on the proposed divestments at RBS and LBG to ensure more competition in Scottish banking services.

The First Minister's marked reluctance to mention the bailout may amuse. Of more consequence is his government's unwillingness to quantify the scale, economic impact or implications of this unprecedented intervention for Scotland. Elsewhere in Ireland, London and Brussels debate rages-but not here, despite Scotland having a much larger banking sector relative to our economy than any other European nation. We need a wide-ranging debate about the way forward.

On the issue of regulation, many witnesses argued for improved communications with the tripartite bodies – the Treasury, Bank of England, the Financial Services Authority (FSA) – and UKFI, which manages the public's investments in the banks.

This is important because more than half of the world's top 20 financial organisations have established operations in Scotland. Our banks may be weakened but RBS and Lloyds remain major employers and help to attract and sustain other businesses here. Competition will be enhanced by new entrants from EU-driven divestments, new banking models from Tesco Bank and Virgin Money, and organic growth by other players such as Clydesdale and HSBC.

But crucially the Scottish financial sector has strengths beyond banking. For example Scotland has a 24 per cent share of UK employment in the life and pensions sector, compared with just 9 per cent in banking. Witnesses repeatedly testified to these strengths in insurance, life and pensions, investment management and asset servicing. From Scottish-based subsidiaries of global players, to independent companies like Standard Life, to private boutiques, Scotland has critical mass in these areas.

The FSA board has already begun a welcome rethink of its role. And beyond the big agendas of improved regulation, more competition, encouragement for new entrants and the promotion of Scotland as a location of choice there are several enabling conditions that must be addressed.

We must ensure the coming squeeze on public finances, in part a consequence of the banking bailout, does not undermine a competitive advantage in financial services of which Scotland is justly proud.

• Wendy Alexander MSP is a member of Holyrood's economy, energy and tourism committee, but writes in a personal capacity.