Sunday, 15 March 2009

The Royal Bank

Speaking at the Lib Dem conference, Vince Cable spoke about the Royal Bank crisis:
The collapse of the Royal Bank of Scotland would have wiped out the budget of an independent Scotland, the deputy Liberal Democrat leader said.

Vince Cable said the RBS balance sheet was 15 times the size of Scotland's gross national product

Well, let's see. I recommend looking at Calum Cashley's response:
Vince Cable, old buffer of the Liberal Democrats and former Glasgow Labour councillor, has claimed that the RBS balance sheet was 15 times the size of Scotland's Gross National Product, implying that this makes Scotland too wee or too poor to be independent.

How does he know that? Owing to the complexities surrounding the estimation of GNP no official GNP estimates currently exist for Scotland (penultimate page). The best you can get is GVA - doesn't have the international earnings component of GNP - Scotland's was £98.5 billion in 2007, a per capita GVA for Scotland of 96% of the UK's. The oil industry had a GVA of £30 billion (not included in Scotland's total).

RBS's balance sheet was standing at £1.9 trillion at the end of 2007 - will be substantially less now - one fifteenth of which would be £126.67 billion, so to make Cable's calculation work you'd have to have £28 billion of overseas earnings for Scots (including Scottish companies) - or we can have our oil back, thanks. It's quite possible that Scots earned that much elsewhere in the world. Quite possible and totally unimportant. The UK GVA in 2007 was £700 billion short of the balance sheet value of RBS' assets - that means chuffle all either, all the money for the bank bail-out is borrowed, the UK can't afford this bail-out just as the US can't afford the money being stuffed into its banks.

I hope that Calum doesn't mind my copying so much of his post, but I'm rather fed up with the unthinking claim that an independent Scotland would necessarily be unable to support itself.

Now, I enjoy counterfactual history as much as anyone. Allow me to indulge.

Scenario A:

An RBS in an independent Scotland isn't allowed by the English authorities to take over NatWest. The Royal continues being a smallish conservative Scottish Bank and Fred the Shred leaves the Clydesdale and moves to London to perform his miracles down there.

Scenario B:

Somehow the Royal does buy NatWest and finds itself in a battle with Barclays to purchase ABN Amro. The English authorities are annoyed enough at the Royal being so big and put pressure on the Dutch to go with Barclays. A short while later it's Barclays that's going down the plughole - perhaps even under Sir Fred's leadership!

Scenario C:

The Scottish Government has appointed yours truly as Governor of the (Central) Bank of Scotland. I persuade Prime Minister Cashley that Scotland shouldn't have a Central Bank! A libertarian monetary policy is introduced. It is made quite clear in advance that the Scottish Government will not bail out any company, including banks. Depositors wisely spread their money around. Local savings banks are restarted and prosper. "Know Your Customer" means playing golf with them, not creating a database. More and more banks offer gold-backed notes. In such a climate it's unlikely that a Scottish-based bank would get bogged down in the bizarre world of derivatives and credit default swaps. But let's suppose that somehow the Royal has done just that and goes pear-shaped. What then?

What happens then is that Prime Minister Cashley says: "Nothing to do with us, Gov" and "Not a penny from the Scottish taxpayer. You ken noo..." The world's financial community is shocked and Scotland is traduced in the international press.

But two years down the track things are different. England and the USA have poured trillions into bailing out their fractional reserve banks and all to no effect. Their public finances are in ruins. And Scotland? Well we're sitting pretty. Everyone now sees that it was the others who were out of step, not us. The Scottish financial regime is seen as the soundest in the world and we all live happily ever after.

1 comment:

David Farrer said...

Comments made on previous template:

Neil Craig
Then the "international community" invite us to negotiate over paying up at somewhere like Ramboullet. When we "refuse to negotiate" NATO send in the bombers. 
To be fair I think a lot of other factors would have to work against us for that to happen.

26 March 2009, 15:24:20 GMT
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David Farrer
Anon: probaly true, but that won't stop a bit of behind the scenes armtwisting.

20 March 2009, 16:03:59 GMT
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The UK blocking bank takeovers post-Scottish independence would be illegal if Scotland were to join the EU (which is a stated aim of the SNP). The same would be true of blocking an ABN takeover. As soon will be regulating on a national basis rather than following the TBA EU regulation scheme.

18 March 2009, 09:55:23 GMT
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David Farrer
Thanks Bryan - already on my list! The Ticker is quite a scary site sometimes.

16 March 2009, 09:40:03 GMT
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Colin Finlay
I suspect that CC knows exactly the quantum of profit which may be certified as healthy and the extent of risk demonised as obscene.

16 March 2009, 08:55:05 GMT
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Calum Cashley
Well ... 
There's always another scenario - that Scottish regulation is done properly, that heatlhy profits are allowed but obscene risks aren't ...

16 March 2009, 00:47:50 GMT
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Found a site and article you might find interesting;

16 March 2009, 00:34:32 GMT