Scottish Bank Headquarters, past, present and future: a potted history of 21st century banking in Scotland.
By A Retired Bank Manager
While Nicola Sturgeon suspended work on the economics of independence in March last year to concentrate on tackling the Covid pandemic, this hasn’t stopped the UK government encouraging its friendly think tanks and business contacts to speak out against Scottish self-government during the Holyrood election campaign.
The latest to do so is the chief executive of the UK state owned NatWest Group, Alison Rose, who threatened to remove a token brass plate from Gogarburn in Edinburgh to London.
Senior SNP figures have accepted that, when Scotland becomes independent, banks would have to set up separate companies to operate in Scotland and England. This was always the case following Basel 3, the global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk, developed in response to the deficiencies in financial regulation, not least in London, revealed by the financial crisis of 2007-08.
In reality, the effective RBS HQ, moved to London some years ago and on 14 February 2020, it was announced that RBS Group was to be renamed NatWest Group.
1. When Scottish Banks were the best in Britain
2. Gordon Brown and Alistair Darling’s part in the 2008 Banking crash
3. Brexit Banking exodus from London
4. Banking in an independent Scotland
1 When Scottish Banks were the best in Britain
In the mid-1990s the Bank of Scotland, the only commercial institution created by the Parliament of Scotland to remain in existence, and Royal Bank of Scotland, both run from Edinburgh by Scottish qualified bankers, were the best performing and most modern banks in the UK. Business boomed and the share price soared but this success attracted hostile takeover threats. Both competed to take over the slumbering giant that was Nat West. The Royal Bank won and found assets that exceeded their expectations. Fuelled by this success, Fred Goodwin strived for global expansion which is well documented in Ian Fraser’s excellent “Shredded” – Inside RBS, the Bank That Broke Britain.
The Bank of Scotland, which was the first bank in the UK to install a central computer system and developed the first online banking system in the UK, was left trying to grow through a merger.
This was achieved by linking up with Halifax Building Society which had only been a Bank for four years and the joint operation was run by Andy Hornby who joined Halifax from ASDA. This changed the Bank’s culture completely and led to the outsourcing of many of the Bank’s functions. The Bank’s prudent lending policies were abandoned in the pursuit of growth at all costs which led to its collapse in in 2008. As Iain MacWhirter wrote at the time, “Scottish Labourites at their conference in Manchester in September 2008 were practically punching the air at the collapse of HBOS”.
Prime Minister Gordon Brown personally brokered the deal with Lloyds TSB but failed to make an Edinburgh Headquarters a condition of the deal. One of the requirements of the new Lloyds Bank management was to insist on flying the Union Flag on top of The Mound and imposed the Lloyds computer system, which was light years behind the Bank of Scotland’s, much to chagrin of staff and customers alike.
In 2015, an investigation by the Prudential Regulation Authority and the Financial Conduct Authority blamed the HBOS failure requiring the bailout on the bank’s executives, as well as being critical of the UK Financial Services Authority (FSA), the then-regulator.
2. Gordon Brown and Alistair Darling’s part in the Banking Crash
In the 1980s the Tories encouraged Building Societies to demutualise and eventually turning them into banks led to ruin as they didn’t have expertise to compete with established banks.
Among those was Newcastle based Northern Rock which was the first UK bank to fail in 150 years and the Labour government ploughed tens of billions into rescuing it.
Gordon Brown as Labour Chancellor of the Exchequer, the man responsible for Bank regulation was in favour of little or no supervision of reckless lending. Consider his Mansion House speech to Bankers on 20th June 2007, less than three months before the Northern Rock failed.
“Over the ten years that I have had the privilege of addressing you as Chancellor, I have been able year by year to record how the City of London has risen by your efforts, ingenuity and creativity to become a new world leader.
I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.
And I believe the lesson we learn from the success of the City has ramifications far beyond the City itself – that we are leading because we are first in putting to work exactly that set of qualities that is needed for global success:
And I believe it will be said of this age, the first decades of the 21st century, that out of the greatest restructuring of the global economy, perhaps even greater than the industrial revolution, a new world order was created.”
Alistair Darling learnt no lessons from the collapse of Northern Rock in September 2007, and his March 2008 Budget speech just six months after the first UK bank collapse makes embarrassing reading today: “…we have maintained confidence and stability in the banking system … We have turned welfare into work and borrowing into wealth creation.” As Chancellor, Alistair Darling failed to tighten banking regulations.
It was the UK regulatory authorities headed by Chancellor of Exchequer Alistair Darling that had the powers to investigate the RBS / AMRO take over but ignored fact that no proper due diligence was done by RBS on a deal worth £49 billion before they gave its approval for the world’s biggest bank take over deal that brought about the collapse of the Royal Bank of Scotland.
Incredibly, the Financial Services Authority overlooked the rules on capital by allowing Fred Goodwin’s RBS to dip below 4%, below the minimum regulatory requirement on capital, to do the ABN Amro deal.
At the time Fred Goodwin was an adviser to Alistair Darling as Chancellor, and was still a member of a key Treasury body advising Labour months after the banking crisis and quitting RBS.
Read more on the banking bail out at http://www.businessforscotland.co.uk/bizforscotland-destroys-the-no-campaigns-bank-bail-out-lies/
3. Brexit Banking Exodus from London
The Ulster Bank, also owned by NatWest, was subdivided into two separate legal entities, Ulster Bank Limited (UBL – registered in Northern Ireland Headquartered in Belfast and Ulster Bank Ireland DAC (UBIDAC – registered in the Republic of Ireland and Headquartered in Dublin in order to trade in each country.
Bizarrely, In February 2021, following extensive review, the NatWest Group announced plans to withdraw Ulster Bank from the Republic of Ireland with a “phased withdrawal” over the “coming years”.
Bizarrely, as an updated report from think tank New Financial suggests 440 financial services firms have moved some or all of their jobs out of London because of Brexit, along with around £900bn in bank assets (roughly 10% of the entire UK banking system).
Dublin is the winner with 135 firms have chosen the Irish capital as their post-divorce location, including Barclays Bank and Bank of America, followed by Paris with 102 firms, Luxembourg with 93, Frankfurt on 62, and Amsterdam on 48. This represent thousands of highly paid financial sector jobs many of which could have come to Scotland if we were independent in the EU.
4. Banking in an Independent Scotland
An independent Scotland will need a Central Bank and, contrary to Unionist claims, Scotland would be entitled to an equitable share of the Bank of England’s gold and currency reserves totalling $212 billion.
When Scotland becomes independent, all banks and other financial sector activities will require to establish headquarters here in order to trade which will create new jobs and accelerate the use of local legal and accountancy expertise which both HBOS and Royal Bank have increasingly centred in London.
As Michelle Thomson wrote in 2020, https://www.independentview.org/post/financial-choices
“There have been no significant debates in the Scottish Parliament about our financial systems – such as regulation, banking issues, quantitative easing and in particular the attitude of banks to small business. There are no Cross-Party Parliamentary Groups about banking and finance. Many of Scotland’s small businesses have been ruined or damaged by the actions of banks, perhaps the most notorious being the (UK State owned) RBS and its rapacious Global Restructuring Group.”
The financial, legal and accountancy sectors have lots to gain, from an independent Scotland adopting its traditional reputation for sound banking practices and putting the customer first.