Four myths about Scotland’s banks and the financial crisis

There are a huge number of numerically nonsensical myths doing the rounds of the Scottish independence debate at the moment, writes guest blogger Nick Reid. A good many of them are being put forward by the pro-separation group Business for Scotland.

We could spend forever going through them, but here I just want to concentrate on a few of the ones surrounding the banking crisis in Scotland. Below, I have put the points made by Business for Scotland in bold and then done a little debunking beneath.

Myth: The UK paid £66bn to bail out RBS & HBOS, but do you know that the US Federal Reserve contributed £285bn to the RBS and £115bn to the HBOS bailout packages?

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Reality: This is an attempt to make it look as if global central banks joined with the UK in bailing out the commercial banks. But it confuses the actual cost to the UK tax payer in recapitalising the near-bankrupt RBS & HBOS, which amounted to £66bn, and the actions of Central Banks around the world, led by the US Federal Reserve, in providing short term liquidity during the crisis.

The latter central bank monetary operations to provide liquidity did not incur a cost to the taxpayer in the same way as the former. The £66bn spent on recapitalising RBS & HBOS was a real cost to the UK taxpayer, which it may never recoup.

Scotland's GDP is £150bn. Had it been left to come up with this £66bn alone, its budget would have been utterly swamped. That would have meant a loan from friendly governments or the IMF.

Myth:The H in HBOS stands for Halifax, which isn't in Scotland by the way.

Reality: In 2006, HBOS secured the passing of theHBOS Group Reorganisation Act 2006.The act allowed HBOS to make the Governor and Company of the Bank of Scotland a public limited company, Bank of Scotland plc, which became the principal banking subsidiary of HBOS. Halifax plc transferred its undertakings to Bank of Scotland plc, and although the brand name was retained,Halifax then began to operate under the latter's UKbanking licence.The Bank of Scotland is headquartered at North Bank Street (named after the bank moving there in 1806) in Edinburgh, not Halifax.

Myth: Barclays, a London registered bank, received £552bn from the Federal Reserve and £6bn from the Qatari royal family, and nothing at all from the UK government.

Reality: Again, this confuses short-term liquidity injections from central banks and actual recapitalisation packages for bankrupt institutions. Unlike RBS or HBOS, Barclays wasn't facing bankruptcy, hence it didn't need an equity injection from the UK government. The £552bn was liquidity (no cost to taxpayers), and the £6bn an investment from the Qataris.

Myth: Let's regulate the banks in an independent Scotland so that they can't fail.

Reality: Banking regulation is decided at an international level through agreements such as the Basel Accords, which set standards on capital adequacy, stress testing and market liquidity risk. If Scottish banks wish to operate in the global markets, they need to comply with international standards, not domestic ones.

RBS's demise wasn't due to poor regulation, but because of poor management, misunderstanding of basic banking practice, and over expansion. RBS's failure is down to Fred Goodwin and his senior management team headquartered in Edinburgh.