Economics of Independence

Why did the banks only become Scottish – after they failed?


Why did the banks only become Scottish – after they failed?

This joke reminds me though, of the one of the rallying calls of the ‘No’ campaign. The accusation that independent Scotland’s banks were bailed out by the UK specifically Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBoS).

Let’s ignore for now that an independent Scotland might have regulated its banks like Sweden and not had a collapse.  Let’s also ignore the probability that we would almost certainly have regulated lenders differently to those with a London centric Westminster view, given that our economy would probably be more balanced between energy and manufacturing and finance and not so finance led, had we become independent in the 1970s.

Instead let us concentrate on the questions: were the banks exclusively Scottish companies, and if they were, who’s responsibility would the bailouts have been?

Some relevant facts

  1. The banks were wholly regulated from London. They were only allowed to change the way they lend money by the Westminster Parliament who were following the neo-classical economic strategy of little or seemingly no regulation, and a no limits on lending strategy as long as the loan is secured against an asset. The joint architect of this economic strategy that helped to collapse the global economy was Alistair Darling now the leader of the ‘No’ campaign. 
  2. 90% of RBS and HBoS UK employees were based in out-with Scotland so 90% of employers income tax was paid to Westminster, and not counted as Scottish or Scottish Government revenue. 
  3. Likewise 90% of the banks national insurance contributions were paid to Westminster and not counted as Scottish.
  4. 80% of the losses of RBS for example were generated from the banks London based operations.
  5. As with all companies corporation tax is not considered regional and therefore the corporation tax paid by the banks is not considered to be a Scottish Government revenue, it is all paid directly to Westminster. Note: RBS paid £16 billion in corporate taxes from 1998 to 2007, NONE of this was counted as Scottish Government revenue. 

So if all the Government revenues associated with the banking operations in the ‘boom years’ were added to the UK balance sheet, why should all the losses in the ‘bust years’ only be added to Scotland’s balance sheet? 

In other words why did the banks only become Scottish when they failed, when they were quite clearly British when they were successful?

However, if RBS and HBoS were purely Scottish banks and their taxes were all paid to Scotland (and also as an independent nation Scotland had the benefit of thirty years of oil and gas revenues) it is most probable that the country would be in a better position to bail out the banks than the UK was when it came.

Would we have needed to bail out the banks?

The UK Government, regulated the banks, or rather de-regulated the banks, decided to bail out the banks, when they failed, and let ordinary citizens take the hit, not just the shareholders. In doing this they transferred a banking liquidity issue into a (so far) unsolvable sovereign debt problem.  It is worth noting that the austerity measures implemented as a result of the bail out mean that for every five pounds of cuts planned by the UK Chancellor, only about £1.00 of cuts has yet been applied. 

Would Scotland, as a smaller independent nation, have made the same regulatory mistakes as the UK?  Would we have regulated the banks so they couldn’t collapse like Sweden?  There were plenty voices heard in heated discussion in economic circles in Scotland warning that lending was reaching unsustainable levels – my own voice among them.  Would those voices have held more sway in a smaller self governing nation? 

But that is all academic, not because no-one can guarantee what would have happened, but because of one undeniable economic/international banking fact. That the country that a bank has its headquarters in has no relevance to the share of the cost of the bail out.  

In case you need to read that again ‘the country that a bank has its headquarters in has no relevance to the share of the cost of the bail out’.

The real point

As Andrew Hughes Hallett, Professor of Economics at St Andrew’s University, put it: “The real point here, and this is the real point, is by international convention, when banks which operate in more than one country get into these sorts of conditions, the bailout is shared in proportion to the area of activities of those banks, and therefore it’s shared between several countries.

“In the case of the RBS, I’m not sure of the exact numbers, but roughly speaking 90% of its operations are in England and 10% are in Scotland, the result being, by that convention, therefore, that the rest of the UK would have to carry 90% of the liabilities of RBS and Scotland 10%. 

“And the precedent for this, if you want to go into the details, are the Fortis Bank and the Dexia Bank, two banks which were shared between France, Belgium and the Netherlands, at the same time were bailed out in proportion by France, Belgium and the Netherlands.”

Did you know that RBS was also bailed out by the American Federal Reserve and the Australian Central Bank?  The UK government bail out of RBS and HBOS amounted to £65bn a lot of money but the US federal reserve made emergency loans available to RBS of £285bn and to HBOS of £115bn and $552.32bn to Barclays – sorry who bailed out the British banks again? 

Again it is worth noting that 80% of all losses generated by RBS came from their London based investment banking division.


The Scottish banks bail out argument is a falsehood, a scare story that bears no relation to the actual international conventions that cover banking bail outs. As an independent country we would have contributed roughly the same amount as we paid as part of the UK – about 10%.

And if you are still not convinced, Halifax is in England, isn’t it?

Further Reading – Fed Reserve Bails out UK banks

Support Business for Scotland, as we convince the business community of the benefits of voting Yes in 2014 – Read More

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland Gordon ran a business strategy and social media, sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and Believe in Scotland.


  • An interesting take on the issue, but do you not agree that there is a difference between the support provided to HBOS and RBS provided by the US and UK?

    The UK took ownership of the banks to in effect guarantee the debt of the companies, by in effect turning it into national debt, this facilitated the US to offer the vast amounts of “liquidity” or emergency loans which they, and the UK provided, to allow operating capital while their distressed assets and loans were strangling them. This liquidity would not have been forthcoming without the UK guaranteeing it,

    • The overall bail out packages were structured in different ways – Barclays got all of its funding which was also structured in loan and capital from the USA and Qatar – Banks are not bailed out just by the country it is headquarters in.

  • Just seen this article now. Very interesting as are all the blogs on this site.
    I have a question regarding RBS and independence. When Scotland regains its independence, what will be the status of RBS given that it is still over 80% owned by the British state. Will an independent Scotland control that 80% or just a pro-rata proportion of the 80%?
    I couldn’t find anything in the white paper about this, though its a big document and I may have missed something!

  • Whilst I agree with the thrust of the article, I should just make a small correction: It stated that RBS was in part bailed out by the Australian central bank. In fact the Reserve Bank of Australia (RBA) did not bail out any banks. The Australian banks were always better regulated and did not require bailing out. What the RBA did was to guarantee their loans, in particular the day to day process of inter-bank lending, which was in danger of freezing in the immediate aftermath of the US collapses.

    This guarantee was sufficient to keep the banking sector in Australia from falling victim to the consequences of mismanagement in the US, Britain and elsewhere. The guarantees were never called on. They would have extended to the Australian operations of RBS, which are not large, and in any case were governed by APRA (Australian Prudential Regulation Authority) and so were actually quite safe.

    One concern they did have was that the National Australia Bank (NAB) is currently the majority shareholder in the Clydesdale Bank. There was no question of Australia bailing out Clydesdale, that would have been Britain’s problem, but NAB did have to write down the value of that asset as Clydesdale’s share price dropped. However, as the Australian banks were, and still remain, amongst the most profitable in the world, and the NAB is many times the size of Clydesdale, they were able to absorb that write-down easily.

    The point is, all of this is consistent with Gordon MacIntyre-Kemp’s central contention that sovereign nations are responsible for banks operating within their jurisdictions. Thus Australia was responsible for RBS’s operations in Australia, but not for NAB’s operations in Scotland (Clydesdale). Similarly, had Scotland and England been separate when it all kicked off, Scotland would have been responsible for RBS’s Scottish business, but not for NatWest, their English business. Of course we’d also have been responsible for regulating the High Street banks in Scotland and reason says we wouldn’t have allowed them to become big enough to wreck our economy if they failed. But the reason RBS became as big as it did was, as Gordon says, inadequate regulation by the UK govt. and the fact that it swallowed the NatWest.

    • It was also British enough for the leader of the No campaign Alasdair Darling to suggest Fred Goodwin be Knighted for “Services to the Banking Industry”.

      Then he led the complaints, when the knighthood was stripped

      Quote – Former chancellor Alistair Darling has led a political backlash against the decision to strip Fred Goodwin of his knighthood, describing the move as “tawdry”.

      I would hope that any company employing people in Scotland that made a major takeover would get a letter from any First Minister from any party – do you think he didn’t get a letter from the UK government?

      • No that is not the point. You appear to be suggesting that Scotland would have had a different regulatory framework than the UK. As there didn’t seem to be any indication from the Scottish Government that they had any concern as well as the fact that those with responsibility in the UK government were Scotsmen would lead me to believe that there would have been no difference. Furthermore, if RBS were to relocate the operations it has that relates to UK investors to the UK itself then off course the UK will be solely responsible for any bail out. It will also get the tax benefits though. This article seems a bit of a red herring to me. What UK investors should understand is that if they invest in companies outside its jurisdiction such as a future independent Scotland, the UK government cannot guarantee these investments as we have no say in the rules that govern those investments. I personally wish the whole philosophy of banking could change whereby people who work in these banks aren’t just judged on the short term profit they bring to the banks. The Nick Leeson affair should have alerted regulators to this never mind waiting till half the world went bankrupt.

  • These banks are Scottish in name only, they are all owned outwith Scotland and are therefore branches of foreign banks.

  • Goerge Matheson recently claimed that 90% of RBS losses were incurred by Nat West based in London.

    Other ‘invisible’ Treasury income over the years is tax on interest earned by lenders, tax on share sales profits, dividends etc. And of course the great majority of share holders were English based and paid most or all of any benefits accrued into their local economy.

    Regarding HBOS, the merger with the Halifax was feted as a take over by the Scottish media, making much of Scotland losing its oldest bank, and indeed with some justification since the joint assets were allocated 2:1 to the Halifax division and the operational headquarters were set up in Halifax with (IIRCC) only one token Scottish board member. The nominal HQ remained in Edinburgh, but not the operational HQ.
    It should also be noted that most ‘toxic debt’ is associated with the mortgage sector.

    There is also questions arising over the timing of lifting the short-selling ban during the credit crunch cash flow event which was inexplicable to most commentators at the time but perhaps makes more sense to many in hindsight given the ensuing merger with Lloyds.

    There are also questions arising from the, if not totally clandestine, MSM buried easing of Barclay’s cash flow issues by Boe intervention and allowing them to borrow from Middle East sources. All the more galling since Alex Salmond had been shouted down by the Treasury when he suggested that as a possible option for RBS and HBOS.

    Barclays were also excused from the infamous Gunfight at the UK Coral where Darling and Brown fired from the hip.

    The only forcibly acquired financial institution which could reasonably be described as ‘Scottish’ during that period of privateering (in the state licensed piratical sense) was The Dunfermline Building Society even though, rather uniquely, they were in the black.

  • I’m not sure the Banks being British or Scottish, or Welsh, Irish, Italian or any other nationality has anything to do with Scottish Independence at all, let alone swapping nationality after the crash.

    The financial collapse of the banking system was triggered by greed and a fundamental failure to obey simple rules (don’t lend what you don’t have) throughout the entire system, not just in London, New York or anywhere else. The bankers all thought that the boom would go on forever, fundamentally misunderstanding that the boom was a mirage and ignoring the basic rule that unending “growth” is unsustainable in the long term.

    Whilst I agree that the use of this topic is misleading to the debate over Scottish self-determination let’s not lose sight of the fact that Scottish bankers were caught up in the hubris of deregulation as much as anyone else; it’s not just the fault of the City of London and Westminster. Just because someone hands you a gun it doesn’t mean you have to shoot yourself in the foot.

    Personally, and as an Englishman, I think Scotland should be allowed to become independent, but should be provided a mechanism to opt back into the Union if the stability of an independent Scotland can’t be secured within 25 years. In all honesty I think the British nations are stronger together, but I don’t believe in holding anyone back if they think they can make a success from their own efforts.

  • Not a single mention of Fractional Reserve banking – the entire system is corrupt and the people who wish to maintain the banking system as is are equally as corrupt. the FED and what not are privately owned; by the same people who bank roll most others. Fractional Reserve needs to be outlawed.

  • Gordon – good article! Can you provide a link to where the info re size of bailout/emergency loans from Federal Reserve to HBOS/Barclays/RBS?

  • Excellent article and a refreshing antidote to the ill-informed propaganda that continues to be presented by the No campaign.

    You are right to draw attention to the contribution to the UK Treasury that RBS made in corporation tax between 1998-2007 and don’t forget that RBS made generous contributions to the UK Treasury before 1998. But might I suggest that the contributions that RBS made to the UK Treasury and economy are considerably greater than the £16 billion in corporation tax that you cite for the period 1998-2007.

    For example, I don’t have an authoritative figure for the number of RBS’s UK employees (including its subsidiaries) in the period 1998-2007, but I have seen a figure of 40,000 UK-based employees quoted. If this is correct, and assuming an average wage of £20,000 in the period, then the contributions in income tax that RBS employees made to the UK Treasury, just in the nine-year period from 1998-2007, would be around £1.8 billion.

    Added to this are the VAT receipts that accrued to the UK Treasury from the spending of these employees in the period 1998-2007. As this is deducted from disposable income and as the VAT rate is less than income tax (and national insurance) contributions then the corresponding figure will be less, something in the order of £800-900 million, but still considerable. Again, this only accounts for the limited time period 1998-2007. We must not forget that RBS and its employees made significant contributions to the UK Treasury and economy before 1998 and these, too, would have to be factored in to the balance sheet.

    More than this, though, I’m sure you’re familiar with the old adage in economics that one person’s spending is another person’s income. In other words, spending and investment – for economic purposes, consumer spending and capital investment are both types of spending – have much wider multiplier effects in a national economy.

    When RBS, for example, makes an investment in a large branch it creates employment for construction workers, surveyors, architects, bank employees and so on. This generates spending and growth both in the local economy and the national economy, i.e. it has multiplier effects. Similarly, when RBS offers a mortgage to a customer, that, too, creates employment and growth, i.e. it has multiplier effects. Don’t forget also that for every mortgage that RBS created it generated even more revenue for the UK Treasury in the form of stamp duty.

    All of this would need to be factored in to take full account of RBS’s total contribution to the UK Treasury and the UK economy in the period 1998-2007, not to mention the period previous to 1998. But even limiting ourselves to the period 1998-2007, RBS’s contribution to the UK Treasury and UK economy is considerably greater than £16 billion, a conservative estimate would be something in the region of £25-30 billion, I suspect the real figure is significantly greater than that. And you’d have to conduct the same exercise with the Bank of Scotland to get a true idea of the ‘real’ balance sheet.

    The No campaign are simply performing the same deception with RBS and HBoS that they are conducting with Scotland’s share of the UK’s national debt. That is, they assume that the UK gets all the benefits, assets and revenues, and all Scotland is left with are all the liabilities and debts.

    Incidentally, the above approach applies also to the oil and gas industry. The contribution that the oil and gas industry make to the UK Treasury and UK economy is much greater than the headline issue of oil and gas revenues, and the contribution they would make to an independent Scotland’s economy would be even greater still.

  • According to Robert Peston on BBC R4 this morning Lloyds bank has its headquarters in Edinburgh so it is now another ‘failed’ Scottish bank!

  • Let’s not forget 6 banks were bailed out during the crisis. 5 by us the taxpayer and one by the Qataris and the US. Most were UK banks headquartered down south. The FSA has confirmed also that had Lloyds not taken over Halifax Bank of Scotland the funds needed by Lloyds on its own would have been higher as it turned out Lloyds was in a far worse state.

    If you look at the decision makers in those banks in the run up to the collapse, most were English which shows the incompetent first reply in the light it deserves.

    • Hi James – My point wasn’t Scottish V English but British V Scottish. I would argue that some of the most incompetent decisions, in terms of deregulating the banks till the lack of oversight guaranteed greed would lead to failure, were made by the last two chancellors. Both were British and also Scottish and one now leads the No Campaign. The worst and most incompetent Brits are often the Scottish Unionists!

  • Oh for god’s sake would you Scots stop whinging…If you want to make independent decisions and then blame someone else for them, make sure you limit yourself to your own country. Your Bank’s (Scottish) management got the better of you! They decided to buy businesses at inflated prices, they (thus you) have to be held responsible for lack of due diligence, feelings of inferiority and clear greed to profit outside of your limited Scottish orbit and as for 80% of losses generated outside of Scotland. you were going for the 90% of profits that would have been generated had you not been late to the game!

    • Thanks you for you post Sara (AKA Stopyourwingingscots) I think your diatribe sums up the intellectual capacity and the grasp (or lack thereof) of the facts within the No campaign, quite nicely.

  • The ‘Scottish’ banks and RBS in particular were viewed with disdain by the City of London. They didn’t like it one bit that ‘one of their own’, NatWest, whose building was after all one of the iconic buildings in The City at one point, had been taken over by a Scottish bank. The ‘mistake’ was frequently made in many contexts that it had been a ‘merger’ like HBOS and not a takeover at all. Perhaps Fred Goodwin wouldn’t have been so obsessed with ‘proving’ himself to the City without that attitude towards RBS. Something that led to the ABN-Amro take-over. The new RBS, post take-over had become a London-based bank in its operations and thinking. For the City a chance to twist the knife when things went wrong and say it was really a “Scottish” bank was part of a different game from independence.

  • Scottish banks are like Scottish athletes. When they do well they are British, but when they don’t do well they are Scottish.

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