Bank of England prepared for Scottish independence

Mark Carney.  Picture: Ian Rutherford
Mark Carney. Picture: Ian Rutherford
Share this article
Have your say

The Bank of England has drawn up emergency plans to deal with any threat to Britain’s “financial stability” after a Yes vote for independence next month.

Governor Mark Carney yesterday said he had plans to protect the country’s financial institutions, as concerns were raised about the possibility of a run on Scottish banks.

Fears emerged last night about the prospect of “deposit flight” during independence negotiations, with customers withdrawing their savings from Scottish banks due to uncertainty over what currency would be used in an independent Scotland.

But Alex Salmond last night insisted Scotland would share the pound in a currency union with the UK, and he accused the Westminster parties of themselves causing “instability” by rejecting this.

Scotland’s major banks have hinted they could relocate south of the Border after independence and have been warned their credit-worthiness may be downgraded because they are based in a fledgling state.

Mr Carney revealed yesterday that the Bank of England is planning for the prospect of a Yes vote in next month’s referendum and will stand behind Scotland’s financial institutions until independence is enacted in 2016.

“Whatever happens in the vote, the Bank will be the continuing authority for financial stability for some period of time, certainly over the interim period, and we will look to discharge our responsibilities accordingly,” he said.

“Uncertainty about the currency

arrangements could raise financial stability issues. We will, as you would expect us to, have contingency plans for various possibilities.”

Mr Carney said these would cover “various issues in financial markets, issues such as could be related to Scotland”.

Get the latest referendum news, opinion and analysis from across Scotland and beyond on our new Scottish Independence website

The First Minister has hinted that Scotland would simply use the pound without formal agreement if a currency union is ruled out.

But this raises questions about how the country would stand behind its major banks such as Royal Bank of Scotland and Lloyds, as well as financial giants like Standard Life and Scottish Widows in the event of another crash. The Bank of England currently fulfils the role of “lender of last resort”.

Mr Salmond said last night: “What the Bank of England governor has said is very helpful. It shows that he is seeking to ensure financial stability and that the Bank remains in charge for that transitional period.”

He added: “What’s causing any instability is the adamant refusal of the Westminster parties to countenance a currency union which is the preferred option of the vast majority of the Scottish people.”

Four major financial institutions with large parts of their business in Scotland were last night reportedly concerned about “deposit flight” from Scottish banks in the event of a Yes vote.

But Mr Salmond added: “What we’ve been saying is exactly to prevent the fear of deposit flight.”

John McFall, the former Labour MP who chaired the Treasury select committee in the Commons, said: “Governor Carney was asked specifically about the potential of capital flight in the event of independence and said that he has contingency measures.

“It’s clear that the Bank of England is putting plans in place to prevent a run on Scotland’s banks that would be caused by Alex Salmond’s complete failure to set out a credible position on currency. This would put the livelihoods of millions of Scots at risk.”

Currency expert Dr Angus Armstrong of the National Institute of Economic and Social Research (NIESR) said currency confusion raises a number of “potential risks”.

He added: “One is that banks decide to re-domicile their headquarters and if that’s what happens, you want that to go smoothly. These are two systemic banks, not normal banks; these are big important banks and perhaps somebody has done some thought about how you would manage that 

Some credit agencies are now rating banks on the basis of not only their own worthiness, 
but the state standing behind them.

“If the currency arrangements are not resolved fairly quickly after a Yes vote, the question mark is whether that leads to a different credit rating assessment for institutions,” Dr Armstrong said.

“This would make it more expensive to raise funds if their rating is downgraded.”

But Gordon MacIntyre-Kemp, chief executive of the pro-independence Business for Scotland group, added: “As everyone in Scotland expected, and everyone on the No side has denied, the Bank of England has drawn up contingency plans for after the Yes vote.

“We have said all along, and now the Bank of England has agreed, that it is in everybody’s interest to ensure stability for Scotland and rUK. We believe the best way to do that is through a currency union.”

But Better Together campaign chief Alistair Darling stepped up calls for Mr Salmond to set out his Plan B on currency.

The former Labour chancellor said: “The money we would use if we vote for independence isn’t an academic matter, it is critical to everyone in Scotland. Alex Salmond has got to come clean and tell us what Plan B is.

“Hinting at using the pound without a currency union won’t do. It is the only option his own economic advisers ruled out.”