The Staggers

The New Statesman’s rolling politics blog

When is a Scottish Bank not a Scottish Bank?

In 2008, Alex Salmond hailed RBS as the pride of the "Celtic Lion" economy that he envisaged for an independent Scotland. Then it collapsed.

By Rafael Behr Published 12 January 2012 17:44

Is the Royal Bank of Scotland a Scottish bank? The answer, you might think, is in the question.

Technically, of course, RBS is a British bank, majority-owned by UK taxpayers, although the shareholding is kindly managed on our behalf by something called UK Financial Investments Ltd, which is, according to its founding mandate, run "at arm's length" from the Treasury.

In more buoyant economic times, however, when RBS was a private sector champion, it was a potential source of pride and financial clout for Scotland, should it decide to dissolve its union with England. (This was back when Scottish Nationalists looked westward to the dynamic performance of Ireland and considered whether there wasn't a "Celtic Lion" economy ready to be unleashed in imitation of the big cat over the sea. People don't talk so much about the Irish "Celtic Tiger" model these days.)

Channel 4's Faisal Islam published an interesting document on his blog last night showing how Alex Salmond cheered Fred Goodwin on in his takeover bid for ABN Amro - the a deal that ultimately broke the bank. As late as March 2008, Salmond was still selling Edinburgh's financial services buccaneers as evidence that Scotland could stand on its own as part of an "arc of prosperity" alongside Ireland, Iceland and the Nordic countries. The SNP leader told an audience in Harvard:

With RBS and HBOS - two of the world's largest banks - Scotland has global leaders today, tomorrow and for the long-term.

Or not, as it turned out. When RBS needed bailing out by the UK government, its balance sheet assets were equivalent to 2,500% of Scottish GDP. So the question naturally arises, how would an independent Scotland have coped? The SNP answer is to blame Westminster (naturally) and the Labour government for the regulatory failure that allowed the crisis to build in the first place. In that respect, I supposed he agrees with David Cameron.

Alistair Darling, the Chancellor who oversaw the bail out (and a Scot who will be playing a lead role in Labour's anti-independence campaign) has attacked Salmond today for being "slippery" on the issue of RBS exposure. Why should the SNP claim Scotland's oil revenues, Darling asks, but not its share of debt incurred to keep his former financial champion afloat? It is a decent question.

Meanwhile, RBS has announced 3,500 job losses as part of plans to shrink its investment banking operations. That is partly because the bits being scaled down weren't making enough money and partly in anticipation of restructuring to be enforced by the government over the next five years. Under proposals set out by the Vickers Commission on banking reform, high street and retail functions (the bits ordinary people use and trust) must be separated from investment functions (the dodgy casino bits everyone blames for impoverishing us all).

The Treasury had initially resisted the idea of enforcing separation too rigorously on the grounds that it would be a complex, time-consuming procedure that would necessarily delay the process of re-privatising UKFI's banking shares. George Osborne would have liked to sell a few tranches of RBS ahead of the next election to build up a war chest for a populist pre-polling day budget. That doesn't look too likely now. A source inside RBS tells me that this time last year, the bank was fully expecting to see some of its government shares floated in 2012, but the downturn in the economic outlook in the second half of 2011 killed that idea. Now everyone is resigned to the fact that HM Government is the boss for a long time to come.

Eventually, the reformed and restructured banks will be sold off. Then a whole new question arises. How much of the proceeds of that sale belongs to Scotland?

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Tags: Scottish independence RBS Scotland

More from Rafael Behr

29 comments

Fri, 2012-01-13 09:55 — Stu (not verified)

@Matty
I agree with you on this...

Fri, 2012-01-13 10:49 — Drew Edward (not verified)

In what world of accounting and finance would you isolate the losses of just two companies (RBS and HBOS) when working out the overall finances of the country?

There are plenty of UK companies that are technically part owned by the tax-payer due to the high levels of subsidy paid in by the Treasury to keep them afloat, the rail operators, bus companies, defence manufacturers, nuclear power plants, energy companies being obvious examples.

If Scottish based companies losses are going to be backdated to include the bank bail outs of 2007, then all revenue from Scottish based companies paying tax to the Treasury would have to backdated to the same timeline and refunded.

Currently all UK based companies are registered at companies house in London who pay all tax into the exchequer, there is no seperate tax status for Scottish based companies.

To stop this getting ridiculous most sensible economists would tell you a share of national debt would have to be worked out, something the Government has already said would be between 70 and 125 billion depending on the final figures at the time of independence.

Fri, 2012-01-13 11:52 — matthew fox (not verified)

Stu please don't agree with me, your wrong on so many issues and levels it is makes me blush.

Have you heard the phrase " Guilt by Association " ?

Fri, 2012-01-13 12:08 — matthew fox (not verified)

David, Iceland went bust in 2008, it was taken out by its banks.

Are you seriously telling me the SNP secured a victory in 2010 on the single issue of independence?

Don't forget Murdoch and Murdoch Jr, Alex Salmond's BFF's did their best to get the SNP an electoral victory.

Here's a brillant piece of brilliant insight from Alex Salmond in 2006.

“SNP Leader Alex Salmond has today called for Scotland to join northern Europe’s arc of prosperity, with Ireland to the west, Iceland to the north.”

Put that in your arc and smoke it David.

Fri, 2012-01-13 12:29 — Stu (not verified)

Ahhh matty, there you go again... I can sleep at night quite well and I have no guilt the last thing I want is to associate myself with you. Nevermind I won't take offense especially when people like you are set in their ways. And please don't blush, I'm not inclined that way.

Fri, 2012-01-13 14:20 — capt-price (not verified)

If Salmond wins the "yes" vote, then will we he rebrand himself as President Salmond?

Mon, 2012-01-16 21:38 — Martin (not verified)

Of course RBS isn't a monolith - it's made up of a number of companies. And it turns out that the ones that hit the iceberg aren't the (incorporated in Scotland) retail banking ones. They're the corporate and institutional banking ones. Incorporated in... guess where..?

Mon, 2012-01-16 21:41 — Martin (not verified)

@Nigel

To be correct: the 79 referendum required a supermajority of *all those registered to vote*. Which, being an out of date register, included the dead, the moved house and so on, as well as those who weren't bothered either way. All of these groups were effectively counted alongside vociferous 'No' voters.

Thu, 2012-01-12 18:09 — Forlornehope (not verified)

As the UK treasury put up the money then the first call on the proceeds of the sale is to refund that, with an appropriate interest charge. After that, in the very unlikely event of there being a profit, there can be an argument about what is left.

Fri, 2012-01-13 18:11 — matthew fox (not verified)

Come on Stu, your the genius who talked about Japan and Taiwan being propped up.

Until a few weeks ago, stupid you didn't know a formal military alliance from your elbow.

Didn't you have to retract the falsehood about unemployment rising during the " Boom " years?

I know your not inclined to think Stu, I only have to read your amateurish comments.

One day you might get lucky, and be right for a change.

Sweet dreams young prince, sweet dreams.

Thu, 2012-01-12 18:51 — Buckskins (not verified)

"When is a Scottish Bank not a Scottish Bank?"

When it's name starts with (Royal)

Thu, 2012-01-12 20:24 — ted harvey

When is a Scottish Bank not a Scottish Bank?"

When it's name starts with (Royal)

Love it Buckskins.

And of course the RBS could not do anything without the express consent of the Bnak of England and was subject to all Westminster legislation. There was never any subordinate Scottish regulator or legislature governing the affairs of RBS or any nother banks ('Scottish', 'British', USA, European or whatever.

Mr Rafael Behr seems ignorant and confused on UKm and Scottish matters but the answer to the supposed question he posed is in the bleeding obvious category.

Perhaps the real motive for his so-called question comes out in the sub question; how would an indpendent Scotland coped with teh collapsed RBS. The answer is that an indpendent Scotland woudl not let it happen. It happened on the UK's watch -get over it. It is likely that an independent Scottish regulated RBS would have stuck with the traditional Scottish conservative model of banking - as did the Canadian system (with its Scottish antecedents) whose banks have fared remarkably well in the post-credit crunch et al world.

Mr Rafael Behr really doesn't seem to know very much about this entire subject.

Thu, 2012-01-12 20:34 — Hugh Markey (not verified)

The Bank of England tells the whole story. Not the Bank of the United Kingdom - oh, no!
The Republic of Ireland left the ranks of that close-knit UK family back when this blessed archipelago went by the name of Great Britain.
The Republic remained within the Sterling bloc and still has very close links with the UK - hence the largesse heaped on it by UK Chancellor George Osborne.
It is some time ago but the UK successfully partitioned both Ireland and India into their constituent parts.
Iraq a three-way spit with Afghanistan and Pakistan back to tribal territories.
Syria and the Lebenon seem ripe for surgery on religious grounds and Iran has a right ethnic mix.
Smart Alec Scottie has managed to united Business and Labour but he has the ability to frag the United Kingdom right down to its constituent parts.
Those courtiers and constitutional experts had better get moving if they want to get some sort of peerage.

Thu, 2012-01-12 20:55 — DWB

I don't see the problem with Alex Salmond cheerleading for Scottish based businesses.
That is part of his job after all.
And this is from a time when banks had to project power, grow fast or be swallowed up by competitors. Perception is an important part of a banks stability.

Thu, 2012-01-12 21:45 — Benjamin Rae (not verified)

All getting a bit partisan and personal towards Salmond. Bit surprised at the continuining tone from some on the New Statesman to person and party that is ultimatley progressive.

Thu, 2012-01-12 22:00 — Colin (not verified)

When is a Scottish Bank not a Scottish Bank?

Supplementary Questions :

Where did all RBS generated taxation go to?

A - Edinburgh
B - London

Where did RBS have more branches

A - Scotland
B - England

Who was responsible for RBS regulation regime

A - Holyrood
B - Westminster

Add in - where did RBS have more employees, shareholders, etc etc etc

I'll give you a clue......
not Scotland.

Thu, 2012-01-12 22:02 — matthew fox (not verified)

Alex Salmond is schilling for the Murdoch, so how is that progressive.

Scottish Nationalism died the day Iceland went bust.

I know the SNP want to bounce the Scottish people into the euro, and fiscal union.

Does Alex understand the term " Fiscal Union" and how it erodes the nation state.

Sun, 2012-01-15 01:59 — Nigel Lipton (not verified)

Peter, the Scots had a referendum on devolution and the majority voted for it. However, a so called 'super majority' was required and so the a devolved parliament wasn't established. The Scots had to wait until 1997 to get what they asked for.

Fri, 2012-01-13 00:55 — FA

Good piece but a significant proportion of Scottish nationalists are motivated by nothing other than hostility to English people.

Which is why Salmond will in Scotland be teflon despite his utter stupidity in relation to RBS.

Fri, 2012-01-13 01:14 — David (not verified)

@matthew fox: If Scottish nationalism died the day Iceland went bust (in 2008, wasn't it?) how the hell did the SNP majority (under a system designed to prevent it) occur in 2010?

@FA: can you put a number on the 'significant proportion'? No? Didn't think so.

Fri, 2012-01-13 01:41 — Des Demona (not verified)

Doh.!!
I doubt if the The RBS has any 'patriotic' meanining for anyone in Scotland for a couple of reasons. One being historical and one being financial. The RBS was set up in 1727 by English (or union) Royal Charter to directly compete with the Bank of Scotland, which was set up pre-union by the Scottish parliament.

Secondly the RBS is a publicly quoted company. Not Scottish owned.
Thirdly to all you haters, where my parents come from, in the north of Scotland, there are a huge amount of non-Scottish people given the population. It's oil country. And the non-Scottish people I've met seem there to have assimilated quite well.