An Independent Scotland Could Be Another Iceland Banking Collapse

One reason why the British government and the City of London do not want an independent Scotland, is that the greatly oversized Scottish banking system could lead to a banking crisis worse than Iceland’s, according to the Daily Telegraph.

Standard & Poor’s has drafted a report on the problem. Independence advocates have said that they would stay within the sterling currency zone, with the Bank of England serving as their central bank and regulator. This is especially the case for covering deposits up to EU100,000 as required by the EU.

According to the U.K. Treasury figures, the Scottish banking system’s assets are 1,254% the size of Scotland’s GDP, which compares with “an already high 492% of GDP for the U.K., and 880% for Iceland in 2007 just before the banking system collapsed.”

The big banks operating in Scotland include Lloyds and RBS (aka Royal Bank of Scotland Group), which is still majority-owned by the British government. When it published its results in February, RBS stated, “A vote in favor of Scottish independence would be likely to significantly impact the group’s credit ratings and could also impact the fiscal, monetary, legal and regulatory landscape to which the group is subject. Were Scotland to become independent, it may also affect Scotland’s status in the EU.”

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