The surprise news story today (on the front page of the FT with the First Minister doing his best Winston Churchill impression) is that Alex Salmond believes that the UK Government should still be liable for the full £187bn that is propping up RBS even if Scotland were to win independence. In what is surely a tactical move to paint the UK as having mismanaged the economy over the recent past, Salmond’s argument goes that given the “misregulation†took place at the London Treasury, then the London Treasury should carry the can. It’s a decent try, but I can’t say that I am altogether convinced.
The pre-emptive attempt to pin RBS’ woes on London is surely an admission from Salmond that he sees this issue as a millstone, a giant crack in his argument, and he will struggle to convince voters that it’s not Scotland’s problem to deal with.
For a start, the crux of RBS’ problems, the acquisition of ABN Amro for a vastly overinflated cash price, had the blessing of the First Minister, as this link shows. I don’t see how any would-be leader of a country can cherry pick which problems they will take responsibility for and which problems they won’t, particularly when they themselves went into the troubled period with both eyes open and having been an economist at the bank in question.
Another problem is the risk of pushing away one of Scotland’s economic jewels. RBS is constantly urged to move its Headquarters down to London, a move that would be a body blow to employment in the financial sector in Scotland’s Capital. The bank has always maintained that Scotland is part of its fabric, part of its name, and will not move down south. However, if independence takes place and one Government doesn’t want to help it through a tough time while another Government does, where will the bank’s loyalty, and HQ, prove to be then?
Perhaps that is what Salmond is after. HBOS is now part of Lloyds Banking Group, reduced to nothing more than a brand and RBS is deeply troubled. Maybe Salmond is trying to create a space for a new bank to be formed that will be synonymous with a new Scotland. It’s not the worst idea in the world but it is hugely risky. To lose one bank is unfortunate but to lose two would be seen as careless.
Surely the fairest way to apportion out the expense of bailing out of RBS is to work out what percentage of income is realised in Scotland and what percentage is realised in rUK and split the £187bn by this ratio, broadly similar to how Corporation Tax would be applied. A bitter pill for Scotland to swallow but no more bitter than what we are currently having to contend with, and if these oil revenues are as lucrative as suggested then we should be able to help RBS back onto its feet easily enough. Isn’t that the independent, self-standing Scotland that the SNP aspires to?
Of course, Salmond rarely puts a foot wrong and perhaps there is an overriding incentive for the SNP to try winning this argument. A recent poll showed that 65% of Scots would vote for independence if it made them £500 richer as a result. Well, 10% of £187bn is £18.7bn which, spread across Scotland’s 5million people, is £3,740 each. More than enough money to get Scots out voting Yes.
So with a flaky kind of logic, very flaky, that’s potentially the ball game. However, crucially, it also undermines the other Nationalist argument that an independent Scotland could carry RBS’ weight so perhaps this particular ante should not have been upped in the first place.
#1 by Douglas McLellan on January 12, 2012 - 11:15 am
I was surprised that Salmond has done this. There is no way, morally, ethically, politically and probably even legally he can get away with this idea.
If Scotland is to be seen as a mature nation then it needs to take on its debts as well as its assets. And RBS is clearly one of its debts.
#2 by Jeff on January 12, 2012 - 11:22 am
Everything is up for grabs I suppose so it is technically worth a go, but I agree with you, I don’t see how Scotland could wriggle out of this responsibility.
#3 by Alex Buchan on January 12, 2012 - 2:01 pm
Politically its astute. In trying to persuade people to vote for independence he has to instill confidence in his ability to drive a hard bargain.
#4 by Douglas McLellan on January 12, 2012 - 3:43 pm
I disagree. Only the most ardent Nat not look at this and think “he is trying to have his cake and eat it”. Especially given his track record in supporting RBS in its take-over of
There is plenty of hard bargaining ahead. Choosing this to start with is wrong.
#5 by Murray on January 12, 2012 - 10:06 pm
This whole argument is folly.
(1)If RBS is a Scottish Asset and Scottish Debt, then why on earth has is been paying taxes to the UK treasury?
If RBS is Scottish (and not British), then london must surely refund RBS for all taxes paid since 1727, with that money (I’m sure it will be several hundred billion pounds) to Edinburgh and Holyrood can buy back the bank, refund the generous English, Welsh and NI taxpayers then use the rest to take all 5.2 million Scots to the pub.
(2) Even if Scotland WAS responsible for this very British bank, then an Independent Scotland would only be liable for business conducted WITHIN Scotland itself.
RBS conducts only a small % of it’s business within Scotland.
It would be the same situation where Belgian Banks bailed out portions of French banks and vice versa. It was not out of neighbourly love, but out of necessity to secure jobs and homes within the area of risk.
This whole banking issue is a bullet in the gun of unionists to scare people into voting NO in a referendum, I am sad to see so many Scot’s actually belive it.
#6 by R.G. Bargie on January 12, 2012 - 11:17 am
If Scotland took on a share of RBS debt, it would presumably be entitled to a percentage of its shares too. Does anyone want to see a bank owned by TWO national governments?
#7 by Jeff on January 12, 2012 - 11:21 am
Well, look at how intricately linked countries and nations are through the Euro crisis. I’m sure a single bank being owned by two Governments is not even remotely complicated. And to be fair, it wouldn’t actually be owned by two Governments, at least one side would be a minority shareholder, so really just an investor.
#8 by Aidan on January 12, 2012 - 11:24 am
Already happened with Dexia
#9 by R.G. Bargie on January 12, 2012 - 11:37 am
Yes, and look how well it worked out for them…
Point is, “value” of RBS debt to Scotland isn’t £18.7bn. It is, at worst, £18.7bn divided by whatever the ratio of the share price at time of purchase was compared to now. (Currently shares are around half what we paid, so more like £9.5bn.)
#10 by Aidan on January 12, 2012 - 12:12 pm
1. Dexia only very recently became state owned, before it was a multi-national bank like… errr… RBS, HBOS, HSBC, Barclays etc.
2. it’s not £18.7bn, it’s £187bn.
3. That’s the value of the assets the state is underwriting, not the company – the share price of the company is only directly relevant in that equity can be called on to absorb losses from non-performing assets. Unfortunately RBS total market cap is currently £14bn. Which is the why there’s a problem.
#11 by R.G. Bargie on January 12, 2012 - 12:14 pm
“2. it’s not £18.7bn, it’s £187bn.”
We’re discussing Scotland’s share, not the total.
#12 by Aidan on January 12, 2012 - 12:24 pm
Depends how you slice it, but ok – in which case presumably we’d only take 10% of the shares.
And the other points, including your basic misunderstanding of how assets and equity interact?
#13 by R.G. Bargie on January 12, 2012 - 12:37 pm
The more you twist this the more suspicious it looks. The purchase of the bank’s shares by the taxpayer is one thing, the decision to underwrite far more debt than the bank’s equity can support was London’s alone (and Labour’s alone). I see no reason why that millstone should be hung around Scotland’s neck. Scotland should be liable solely for RBS’ liabilities in Scotland, and only in the event that we retain our shareholding in the company. Should the UK government take over that shareholding as part of negotiations, it also takes over all liability.
#14 by Aidan on January 12, 2012 - 2:20 pm
Eh? You think Alistair Darling was in charge of RBS’ commercial activities?!
The only politician actively encouraging RBS’ ill judged behaviour right up until ti collapsed was Alex Salmond
#15 by R.G. Bargie on January 12, 2012 - 3:02 pm
“Eh? You think Alistair Darling was in charge of RBS’ commercial activities?!”
I have no idea how you arrive at that from anything I said.
#16 by Alec on January 13, 2012 - 10:52 am
Further to Aiden, there were hints of this when that blogger whose name escapes me noticed that the SNP website had omitted reference(s) to RBS in its migration. The original deed was, I have no doubt, was a genuine oversight: it was the cack-handed attempt to slip it in when this was pointed out, and transparently unfalsifiable statement that it was going to be seen that it piece was on the website coupled with mimophant-like outrage at being questioned which was the story.
As for however much would be passed to an independent Scotland (along with other aspects of national debt), I assumed the 10% figure is based on population. Is this the only method? What of land area or relevant size of economy or where RBS was located?
~alec
#17 by Aidan on January 13, 2012 - 12:44 pm
What made think you were implying that was: “the decision to underwrite far more debt than the bank’s equity can support was London’s alone (and Labour’s alone)”
Taking on an unsustainable debt to equity ratio was commercial decision taken by RBS at their headquarters in Edinburgh, nothing to do with Alistair Darling, Labour or London.
#18 by Aidan on January 12, 2012 - 11:25 am
This is the bit where I dig out that quote from Eck complaining about “gold-plated regulation” which was unnecessary for RBS due to it’s “reputation for probity” isn’t it?
#19 by Jeff on January 12, 2012 - 11:31 am
Yes it is, right on cue too.
I was going to go for a bit of ‘spivs and speculators’ but I’d be over reaching as strictly speaking that was HBOS.
#20 by Aidan on January 12, 2012 - 12:25 pm
Just re-read this, I’m very confused how you from £187bn in low grade, non-performing debt to every household in Scotland getting nearly 4 grand…
#21 by Jeff on January 12, 2012 - 12:35 pm
4,000*5,000,000 = ~£20bn which is, by my fag packet calculations, approximately Scotland’s share of the UK’s £187bn RBS shareholding.
If Salmond somehow successfully avoids having to pay this money across, then every man, woman and child will have saved about £4,000. It’s not money in the hand, but it’s money in the Government’s coffers at least.
I still think the Government will make its money back on its investment in RBS though.
#22 by Aidan on January 12, 2012 - 12:51 pm
£187bn *isn’t* RBS shareholding. That’s the value of the debt it owns that is lodged with the Treasury’s Asset Protection Agency ie. the subprime mortgages, CDS and other illiquid “toxic” assets. It’s not money in government coffers, it’s a liability on the governments books – that’s why Alex Salmond doesn’t want it.
RBS current market cap is £14bn, which is much smaller.
#23 by Jeff on January 12, 2012 - 1:15 pm
My point still holds. If Scotland doesn’t pick up this tab, it saves each Scot about £4,000 each. Not £4k in the bank, but £4k of liabilities.
#24 by Aidan on January 12, 2012 - 2:18 pm
Scotland isn’t ever going to pick up this tab – that’s the size of liabilities which have to be credibly underwritten which is rather different from actually being bought.
Further, and this is a key difference here, it’s only in an independent Scotland that the burden is likely to actually fall on tax payers in anyway really. While they remain with the Bank of England in it’s role as lender of last resort they can be underwritten with new money from QE. That definitely wouldn’t be possible if they were held by an independent Scotland in the Euro and it’s exceedingly unclear if that would be possible if Scotland remained in Sterling.
So even if they were left there it may be a bullet dodged, but it’s a bullet only being fired because of independence in the first place. I’m not sure this metaphor works…
#25 by Andrew Brown on January 12, 2012 - 12:35 pm
Very interesting blog.
It is completely disingenuous of Salmond to suggest that this issue could be disregarded – and it’s a prime example of where the union has benefited Scotland. Had Scotland been “free by ’93” (or any other date prior to Credit Crunch) it would have been bankrupt in 2008, all things being equal.
I found this on the economics of independence very interesting too – discusses some of the detail and mechanics of fiscal serperation and mentions the banks too: http://www.bondvigilantes.com/2012/01/04/happy-hogmanay-would-an-independent-scotland-still-be-rated-aaa-and-might-the-rest-of-the-uk-get-downgraded-too/
#26 by Murray on January 12, 2012 - 10:13 pm
If Scotland had been free in 93, then Scotland would be responsible for all banking activities INSIDE Scotland. Not outside it. If a Canadian bank operating in Scotland needed money, then a responsible Scottish government would have bailed it out.
Are you aware that French banks bailed out Belgian banks and vice versa?
If RBS operated in an Independent England/Wales/Ni then they would have been paying taxes to THAT government, not Scotland. Therefore THAT government would foot the bill of any bailout within that region.
Sorry, but this whole idea of Scotland being repsonsible for a bank that has been paying money into the UK treasury since it’s inception makes me laugh.
In fact, this whole thing reminds me of Andy Murray,
British when he is wining, Scottish when losing….
#27 by Andrew Brown on January 31, 2012 - 7:54 am
Had Scotland been independent, with RBS (and HBoS for that mattter) headquartered in Edinburgh it would have been the state with regulatory responsibility for these institutions.
In the circumstances of a near collapse of these banks, and with it the whole banking/financial infrastructure, the Scottish Government would have had primary responsibility for any rescue. It would have been unlikely to do this itself and would have required assitance from Eng/Wales/NI, in whose interest it would also have been, given the extent of their interests in those parts of UK.
But such a situation is more analogous to the UK supporting Ireland and it’s bank bailout, rather than the French/Belgium situation of Dexia. It would have been the rest of the former UK effectively bailing Scotland out.
The fact that RBS had previously been (and would still be) a contributor to the UK treasury is not the point, in the same way as the fact it paid taxes in US didn’t mean that Washington was party to its bailout.
As for Murray, I regard him as both British and Scottish at all times and consistantly point out to my (English) friends and colleagues that his record is vastly superior to any other British male Tennis players of recent times.
#28 by Murray on January 31, 2012 - 7:51 pm
Why would the Scottish Government had primary responsibility?
As you say, if RBS was headquartered in an Independent Nation State (Scotland) then surely Scotland would only be responsible for recapitalising the banks within Scotland. If RBS was operating in another Independent Nation State (Kingdom of Wales/Eng/NI) then RBS would have been subject to THAT regulatory regime and taxation system.
No one complained when RBS was paying billions into the UK treasury, but they complained when they had to bail it out. A British bank became exclusively Scottish overnight!
The international convention of Independent Nation States bailing out banks within their sovereign territory has been adopted worldwide, I don’t see why Scotland would be exempt.
#29 by Manny on January 12, 2012 - 12:40 pm
I watched the interview last night, he was more non committal and evasive on the subject than actually saying “No, we won’t take any share of it”.
I can understand why, it would be foolish to commit himself to anything regarding RBS at this stage. It’s something that will take a lot of negotiation, so there’s no point showing his hand this early in the game.
#30 by Gryff on January 12, 2012 - 12:48 pm
Is this a long prelude to the negotiations which may be taking place in a few years time, by renouncing responsibility for UK liabilities, it means they can then be accepted, in a sign of magnanimity or as a trade for some other point of contention. Would taking on the full RBS liability be a good trade for allowing Trident to remain in Scotland for the foreseeable. Or would accepting per capita share of the debt be the cost of a more favourable calculation on the sea boundaries?
#31 by itsyourself on January 12, 2012 - 12:59 pm
The idea that “new” Scotland is responsible for “old” UK mistakes is bizarre in my view. How do we know an independent Scotland would have been the same place to do business as the UK version? Could we have had our banking and property crisis at the same time as Finland for instance?
See http://en.wikipedia.org/wiki/Finnish_banking_crisis_of_1990s
Could Fred not have been run over by a tram in a system that was never removed by an independent Scotland? The past is full of facts, the future full of speculation and this is nothing more than an opening gambit in negotiation.
#32 by Alec on January 13, 2012 - 10:42 am
By that token, why should the country X in year nnnn be responsible for mistakes make by previous Governments in year nnnn-p? You’re looking for a distinction which aint there.
Yes, I can appreciate why a previously disenfranchized territory (e.g. a colony) should be exempt from financial commitments/mismanagement of the former power, but Scotland has been fully integrated into the Westminster system with full representation.
~alec
#33 by Richard Thomson on January 12, 2012 - 1:00 pm
Unionists of all stripes like to promote the argument that an independent Scotland couldn’t have coped with the banking crisis. Suppose they’re right – independent or not, the UK government would still have had to step in to prevent the collapse of the banks in England. That’s not an argument for the union – it’s merely a statement of fact as to what would have had to have happened if there wasn’t to be a meltdown in London and elsewhere.
If you hand over the responsibility for all of those debts to a newly-independent Scottish Government just because a bank has the word ‘Scotland’ somewhere in its name, all you do is go back to square one. It might be Scotland’s problem for all of half a second, but it’s very quickly going to become a problem for rUK again, since that’s where most of their activities were and still are.
Despite what a lot of people seem to think, this is one area where it really doesn’t matter a damn whether Scotland was, or is, inside the union or not – we are where we are, and we are where we pretty much would have been anyway under any circumstances.
Bottom line: the state share of these banks is part of UKFI – itself just one of the many assets and liabilities to be divided proportionately in the event of independence. Whether that’s by population, GDP or as a share of the income generated in Scotland doesn’t really matter – there probably won’t be more than a couple of billion in it either way anyway.
#34 by Jeff on January 12, 2012 - 1:12 pm
So when you this is “one of the many assets and liabilities to be divided proportionately in the event of independence” does that mean you disagree with Salmond when he says “people have to take responsibility for the past mistakes they made”.
Expect a phone call or a knock on the door… 😉
Incidentally, I’m not necessarily saying that Scotland couldn’t find a way to bail out its banks, I find the issue rather dull because what’s happened has happened and we are where we are. It is why Salmond decided to lead on this in his first comments since the referendum was agreed that I find interesting. Why this topic? It’s hardly a positive vision of the future after all…
#35 by Murray on January 12, 2012 - 10:14 pm
Finally someone with some common sense and analytical skills. Thank you sir.
#36 by Richard Thomson on January 12, 2012 - 1:23 pm
Not that I speak for them in any capacity any longer, but I’m sure no-one in the SNP is seeking to resile in any way from what they would consider to be Scotland’s fair share, Jeff 🙂
I can’t get the FT link to work right now, but I’d be surprised if he brought it up. More likely it was in response to a question.
#37 by BaffieBox on January 12, 2012 - 1:49 pm
Faisal Islam of Channel 4 News was pushing the economic debate heavily yesterday on Twitter (and talking some rubbish it has to be said), and I get the distinct impression that RBS will be one of the big issues they’ll look to smear Salmond on. Meh, fair enough I guess given the failure but I dont really see RBS failures in a UK context that relevant to a hypothetical argument. They’ll try and make it stick though to smear Salmond and implicit thump Scotland’s ability at same time. Up to them, if that’s the tactics they want to use. We are no different to any other country who made poor decisions rather than having poor ability.
A couple of quotes from Scotland’s Economic Future by Reform Scotland (which should be an essential read during this debate):
“John Kay’s second contribution is particularly relevant to Andrew Hughes Hallett’s view that ‘a properly functioning banking system …
is an essential component in any monetary regime’ this implying ‘that
a local banking system, and a hand in its regulation, will be needed to
make monetary policy effective.’ John Kay estimates that the liabilities of
the two “Scottish banks†which were rescued by the UK government (the
Royal Bank of Scotland and Halifax Bank of Scotland) were some 30 times Scottish GDP. These liabilities were far greater than those which could have been guaranteed by any Scottish government (for which read the Scottish taxpayer). But, John Kay argues, the UK government should never have underwritten all the liabilities of the “Scottish banks†because the Scottish (or the UK ) taxpayer has no moral or legal obligation to underwrite all the liabilities incurred by private institutions. Of course, the central bank has long assumed the responsibility of acting as lender of last resort against good security, but this was intended to apply as a guarantee only of the retail bank deposits on which clearing banks pyramid credit. It was not the intention to apply the same principle to financial conglomerates which willingly embraced a clash of cultures resulting in the greatest financial crisis since the 1930s and much of whose liabilities were not those of the Scottish people (or the people of the UK) either morally or legally.”
“It was suggested by the Brown Government that Scotland should be grateful to it for having provided RBS and HBOS with capital and debt guarantees. This is rather like a driver responsible for a major road accident seeking credit for taking the survivors to hospital.”
#38 by Richard Thomson on January 12, 2012 - 2:04 pm
“This is rather like a driver responsible for a major road accident seeking credit for taking the survivors to hospital.â€
…before claiming that his accident proves that none of his passengers should ever consider driving themselves, since they didn’t stop him from crashing.
#39 by Alec on January 13, 2012 - 11:05 am
It depends if the driver in question had caused the crash on a previously placcid road, or if he had been in a convoy of poorly maintained and driven vehicles in which he was the individual unfortunate to have been the first to make a mistake.
And if the survivors were genuinely uninvolved instead of having been willing participants themselves or willingly elected the offending driver.
As for the question of seeking credit, conduct after causing injury to others features all the time in court cases.
~alec
#40 by cynicalHighlander on January 12, 2012 - 3:02 pm
Scotland and the banking bailout – time for the truth
Now if these banks were owned by Scotland I wonder why the FED helped in bailing them out.
The Fed’s Secret Liquidity Lifelines
Royal Bank of Scotland Group Plc, whose 45.5 billion-pound ($74 billion) emergency capital injection from U.K. taxpayers was the world’s biggest announced bank bailout, also got more secret loans from the U.S. Federal Reserve than any other foreign bank. On Oct. 10, 2008, as the bank’s stock price plunged 21 percent in a single day, Edinburgh-based RBS was borrowing $62.5 billion from the Fed through its U.S. broker-dealer, $11.5 billion through its New York branch, $10 billion through its RBS Citizens NA bank and $500 million through Citizens Bank of Pennsylvania. The Fed aid exceeded even the 36.6 billion pounds of emergency liquidity the Bank of England supplied in secret to RBS in October 2008. The BOE disclosed the aid package in November 2009, more than a year before the Fed aid was revealed.
#41 by Craig on January 12, 2012 - 3:39 pm
There would be no shareholding without the Asset Protection Scheme, the Credit Guarantee Scheme and the Special Liquidity Scheme to name a few. (The fees of which have so far covered the increased national debt for recapitalising the banks).
#42 by Dubbieside on January 12, 2012 - 7:59 pm
Could someone correct me if I am wrong on this, but in the case of Dexia were the liabilities of this bank not shared in direct proportion to the jurisdictions the liabilities accrued in.
Was it not the case that with Dexia the liabilities were shared over three national governments?
If this was indeed the case with Dexia, why the difference with RBS and HBOS? or is this another union benefit. Westminster takes the tax from RBS and HBOS, who I believe contributed a major share of the UK corporation tax for many years but Scotland alone takes the liabilities.
#43 by cynicalHighlander on January 13, 2012 - 12:02 am
Yes Dubbie Debt or Taxes – the battle of our time
Just look at the latest iteration of Dexia bank and its bail out by Belgium, Luxembourg and France. Today Dexia has said it needs yet another bail out and wants France and its tax payers to take on an even larger proportion of the cost.
RBS an HBoS came under the same unwritten rules but Gordon Brown and others used their spurious argument to attack the Scottish Government for political reasons and spite.
#44 by Dubbieside on January 13, 2012 - 12:16 pm
Cynical
Thank you for the link.
What I find even more puzzling is that some people appear to celebrate the fact that Scotland should be forced to take on another countrys debts.
Is Scotland so unique that international precedent and conventions apply worldwide except in Scotland?
#45 by Alec on January 13, 2012 - 2:50 pm
This is not an Iceland-type discussion. The point being made is that the RBS debts were incurred by the country Scotland was in at the time, not to mention Salmond’s role in setting the mood music..
~alec
Pingback: Fay Young » Turning Pirates into Philanthropists?
#46 by Dubbieside on January 13, 2012 - 12:26 pm
Jeff
Do you think that maybe Alex Salmond thought like a lot of the population that RBS had carried out due diligence on AMBRO? and had not relied that “it must be all right as other companies are bidding”
What if Alex Salmond had written “hold on there Fred old chap, are you sure that this takeover is in RBS,s best interests” would the result would have been any different?
What part did AMBRO play in the “arise sir Fred”? Would he have been given his “gong” for services to banking if he had just run a stuffy old safe bank?
Who recommended him for the “gong”? it certainly was not Alex Salmond.
#47 by Jeff on January 13, 2012 - 12:31 pm
To me, none of that matters, you can’t rewrite history. Scotland is part of the UK and is surely jointly and severally liable for decisions taken by the UK, whatever comes to pass in the future. Who was the Prime Minister recently? Gordon Brown. Should we analyse the decisions he took as PM and make more of those assets and liabilities part of Scotland’s settlement just because he is from Fife? Surely not.
My point about Salmond backing RBS’ acquisition of ABN Amro was more about perception than about a hard and fast rule that Scotland must take its share of the liabilities. That is, how many Scots will let Salmond get away with patting Goodwin on the back for ABN Amro then and not wanting to be part of solving the problem now, just because it is convenient for the Nationalists?
#48 by Alec on January 13, 2012 - 2:54 pm
>> Do you think that maybe Alex Salmond thought like a lot of the population that RBS had carried out due diligence on AMBRO?
He was the chuffin’ First Minister! Not a reader of some moderately popular blog! Some – including me – would say the ball was in his court.
>> What if Alex Salmond had written “hold on there Fred old chap, are you sure that this takeover is in RBS,s best interests†would the result would have been any different?
Well, for one thing, he’d be able to crow now about his prescience (and rightly so).
~alec
Pingback: A parcel of rogues? – Scottish Roundup