The Bank of England released on Friday a record of private discussions with Scottish firms and emergency plans, drawn up to protect Britain’s banking system in case Scotland had voted Yes in last month’s independence referendum.
We’ve pulled out the most important points:
- The Bank was concerned that a Yes vote could have “significant effects for those major UK banks and insurers which were domiciled in Scotland or had substantial Scottish assets and liabilities” — including ratings downgrades and a loss of confidence in Scottish banks due to the lack of credible institutions to back financial stability and the Scottish government’s budgetary credibility.
- The main risk in the short-term was capital bleeding out from Scotland. The Bank notes that “if depositors, policyholders and other creditors believed that an independent Scotland would adopt a new currency, they might have preferred not to take the risk that their assets might be re-denominated into the new currency.”
- The Bank’s regulatory arm — the Prudential Regulation Authority (PRA) — was in private discussions with Scottish banks “to understand their intentions and ensure their operational readiness.” The report notes that many of these banks elected had announced plans to re-domicile ahead of the vote.
- In the event of a Yes vote the Bank would have immediately announced emergency liquidity operations to ensure that the banks has sufficient capital to continue operating.
- It also stood ready to meet increased demand for converting Scottish banknotes into Bank of England notes.
In short, the Bank was concerned about the effect of independence on financial stability across the United Kingdom. At the same time, it expected most of the problems to fall on the newly-independent Scottish government.
But more shocking is the report’s mention that “the Governor [Mark Carney] had advised the Chancellor of the substance and implications of the Committee’s discussion.” If this briefing included details of the private discussions between the PRA and Scottish banks, it may rekindle questions over the alleged “leak” of news before the referendum that the Royal Bank of Scotland planned to re-domicile to England if Scotland voted Yes.
Last month, Scottish First Minister Alex Salmond called for a public inquiry after he accused the Treasury of leaking market sensitive information to the BBC in advance of informing the market.