Banks Move To London

With only a few days left until the independence referendum, Scottish-based financial institutions are falling over themselves to say they will be upping sticks and moving south of the border in the event of a Yes vote.

What are they so worried about?

Broadly, there are five big issues that have prompted the likes of the Royal Bank of Scotland, Lloyds, Clydesdale Bank and Standard Life to say they will move their headquarters if Scotland votes for independence.

Money problems: The question of whether Scotland will keep the pound in the event of independence has been one of the most contentious issues throughout the referendum debate. Alex Salmond has insisted that Scotland will keep the pound; all of the main Westminster parties have ruled it out. On Wednesday Mark Carney, the governor of the Bank of England, said currency union is “incompatible with sovereignty”.

Ultimately, it doesn’t matter who is proved right; banks are worried that the issues is even up for debate. By moving to London, they remove that uncertainty.

Operating without a safety net: The debate about a currency union is not just about whether Scotland gets to share the pound; it’s also about whether the newly independent country would get to share the Bank of England. The Bank regulates the financial industry and is its “lender of last resort”. This means what it says on the tin: if there is a financial shock, the Bank of England will step in and lend money to the nation’s banks when no one else will. This rarely happens but it did during the 2008 credit crunch.

And it has a day-to-day relevance for the banks. They need to raise money from other banks and the markets. If they are not backed by a lender of last resort, their creditors will charge them more to borrow money. This is what RBS was talking about when it said: “A vote in favour of Scottish independence would be likely to significantly impact the group’s credit ratings.”

A member of the club: As a member of the European Union, the UK’s financial institutions benefit from Europe-wide regulations that make it cheap to sell their products and services to a big customer base. (There are also several rules that they’d prefer not to deal with but, overall, most think being a member of the club is a net benefit.)

An independent Scotland may well end up re-joining the EU. But, again, it is an open question. One issue interlinked with Scotland’s currency conundrum is that countries who apply to join the EU must sign up to joining the euro at some future date and need to have their own central bank. However, the Yes campaign has said it wants to share the pound and the Bank of England.