#BizforScotland destroys the No Campaign’s bank bail-out lies

1 Churchill Place Canary Warf1 Churchill Place, Canary Wharf is a very important address in the debate about the economics of independence.  It is home to a company the recent history of which completely exposes the misinformation tactics of the No Campaign.

Over and over again we hear from anti-independence proponents (especially former Chancellor Alastair Darling) that an independent Scotland could not have afforded to bail-out the Scottish banks. After all, Alastair knows best! He was in charge when they collapsed!

The logic of his argument relies on the assertion that banks are bailed out by the taxpayers of the country in which the institution is headquartered.  However, we think that it is almost impossible for the former Chancellor not to be aware that this argument is baseless.

Let’s go back to that address in full: Barclays Bank PLC, Global Headquarters,1 Churchill Place, Canary Wharf, London, E14 5HP, UK.   Barclays is a UK bank and if you accept there is such a thing as a Scottish bank then Barclays is clearly an English bank.

The public was repeatedly informed by the media during the crash that “Barclays didn’t need a taxpayer bail out at all”. In fact, this proved quite the opposite. Barclays Bank – yes, that English based bank – received the single biggest bail out of any UK bank, but most of it didn’t come from the UK taxpayer.

Barclays was bailed out to the tune of £552.32bn (at backdated exchange rates) by the US Federal Reserve and £6bn by the Qatari Government.  Or to put it another way, foreign governments bailed out Barclays to the tune of more than twelve times more money than the UK Government’s capital support for RBS (£45bn).

On October 7th 2011, The Financial Times wrote, “RBS received the world’s biggest bail-out during the financial crisis, at a cost of £45bn to the UK taxpayer”. Now we know that isn’t true. Capital injections were just one part of much broader bail-out packages including combinations of capital, liquidity and asset insurance which, in the case of the larger banks, were almost all from multiple nations.

Citigroup, for example, benefitted from $45bn US taxpayer capital but also from discounted central bank liquidity support around the world. Of course, in the case of Citigroup the US Government made sure an arrangement was put in place whereby American taxpayers would get their money back with a profit ($12bn is just over two years). In contrast, the £45bn of your money Alastair Darling invested in RBS looks like a lost cause now. For the record, that’s an awful lot of hospitals and schools we can’t afford to build.

Barclays is also not moving to the USA. Barclays’ CEO at the time of the crash, Bob Diamond, recently told a Westminster Treasury Select Committee hearing:

“Barclays intended to remain based in London”. He said “the City had numerous benefits, including the time zone, a good pool of talent and the fact that English was the native language”.

The Truth

Why did the US Federal Reserve come to Barclays’ rescue if it was not an American bank and so, on the face of it not its responsibility?

Well, the credit crisis provides us with a clear historical precedent showing that banks are not primarily bailed out by the government of the country hosting their brass plaque. In fact, what matters is risk of contagion. We now know banks are bailed out on the basis of where they have economic assets and business activity the demise of which would lead to contagion in the local and global financial system. There are numerous examples of this. In the case of Barclays, it fell to the US to support the bank because they were one of the single largest purchasers of US Government debt, ipso facto the problem was the US Government’s and not the UK taxpayer’s alone. The US intervened so that its debt market didn’t collapse and to prevent broader consequences for America’s economy and society.

It’s worth also noting that the UK Government bail out of RBS and HBOS amounted to £65bn. That’s a lot of money, but the US Federal Reserve made emergency loans available to RBS of £285bn and to HBOS of £115bn. The US bailed out these UK banks too, in the same way as Scottish taxpayers contributed to liquidity support for international banks based in London (including American ones).

Could an independent Scotland have afforded our contribution?

The answer is absolutely yes, according to the Harvard professor and international banking expert Andrew Hughes-Hallet, who said “the cost of Scotland’s contribution to the bank bail out as an independent country would have been roughly the same as it was as part of the UK – roughly 10%”.

Although we absolutely know this wouldn’t have been the case, even if we’d been left with the full bill of £65bn, we could have afforded it. Scotland after all has bailed the UK out to the tune of £89bn in the last 19 years alone.  Had Scotland been an independent nation, we would have enjoyed a surplus of £68bn over the last 19 years. Instead we bailed the UK out to the tune of £83bn. That is our contribution to UK national debt interest that an independent Scotland would not have paid.  And all of this ignores the question of whether a regulatory system with direct Scottish influence would have allowed RBS and HBOS to over-leverage their balance sheets or that Halifax is actually in Yorkshire!

Conclusion

Next time anyone says Scotland couldn’t have afforded the banking bail out, just ask them why the US Federal Reserve bailed out Barclays to the tune of £552.32bn?

Then explain that the contribution of Scotland’s taxpayers as an independent nation would have been the same as it has been as part of the UK.  And remember 80% of the peak losses at RBS derived from its London based businesses.

And next time you hear Alastair Darling, the man who was in charge of our financial system in the lead up to the credit crisis, have the cheek to peddle fear about the handling of a future credit crisis, you’ll know better. He’s the last man we should be listening to on this subject, so please share this fact based article with as many people as you can.

As Alasdair Gray wrote: ‘Let us flourish by telling the truth’.

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Category: Ambition, Bank Bail-out truth, Business for Scotland, Economic Strengths, Economics of Independence, Gordon MacIntyre-Kemp, Prosperity, Scotland's Economy

About the Author ()

Gordon MacIntyre-Kemp is the Chief Executive of Business for Scotland. Before joining Business for Scotland he ran a small social media and sales & marketing consultancy and was the founding member of Business for Scotland. With a degree in business and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G). Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging new school of economic thinking. Gordon Blogs for Business for Scotland and The Huffington Post.

Comments (19)

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  1. Jason Merritt says:

    If I was struggling financially to run my business and pay a bank loan, and I went to another bank to get a short term loan then I have not been bailed out – Barclays

    Same scenario but no-one would give me a loan, my business was going bankrupt, the bank steps in and takes over the business then I’ve been bailed out – RBS

    • Gordon MacIntyre-Kemp says:

      Not the same thing – No loans no equity investment – no equity investment no loans the deals were done on a packaged bases with differing structures on leans and equity investment. Barclays entire package didn’t not involve the UK making a financial contribution ipso fact an English based bank was bailed out without UK money.

  2. william Patton says:

    If you still need more info on the indy vote then in my opinion you need to get out more .everyone I know yes and no is talking about this up to the point that if it was not so important it mi ght be getting boring

  3. Grant Thomson says:

    The comment about the Ryder Cup shows how impossible it is for some people to accept logic and facts put in front of them. Despite the facts contained in this article, the response still boils down to “maybe so but wee Eck is still a dick”.

  4. nernie says:

    Anyone still not sure of facts get over to the YES Scotland website or Facebook page for links to information you won’t find in the msm or pushed to a small paragraph. I would trust a Scotsman with our best interests at heart than a Westminster backed MP who have in the past been proven liars.

  5. Hamish Burgess says:

    Going by the Unionists own logic, if Scots would be held responsible for bailing out the RBS and BOS, it follows that those whose surnames are Barclay or Lloyd are responsible for bailing out their namesake banks. By extension, Scots would be responsible for any whisky company going into debt and big pussy cats would be responsible if a Tiger Balm producing company went bust. Lets not get into Mars bars!

  6. ian says:

    I’m afraid I’ll still be voting no. I’m no business man far from it. I work in warehousing. The first rule is if it doesn’t come in right it won’t go out right. I’m sorry but I don’t trust the elected first minister or his administration to bring us through. He says we’re governed by Westminster, did he not leave the Scottish parliament, or was voted out? Only then did he not soon after run for a seat at Westminster?

    Also how much will it cost us if we do vote yes? We will be a new country therefore we will need new passports and all other administration costs covered, who pays???? Or am I wrong in that,as I haven’t heard anyone talk about that.

    Also the fact that he is putting the referendum date next to or around the time of the commonwealth games and Ryder cup is playing with peoples emotions. If he was so sure they can win he would not use such a gimmick as that.

    I also think it’s weird how the then government are to blame for a global event. Am I wrong in saying that it was bankers in the US that caused the economic meltdown?? Sorry if I went on but am finding it hard to find answers

    • Scott says:

      I really think you need to re-read the last few paragraphs. If we could have afforded to bail out the banks, I think a few million passports won’t be a big deal!

      Why shouldn’t Salmond have ran for Westminster, do the SNP not deserve to be represented? We have little clout as it is. As for not trusting him, by implication that means you trust the tories or the sham that is Labour. Salmond has never been “voted out” of either parliament.

      There are plenty of answers in the White Paper (if you can be bothered).

  7. Jean Mcluskie says:

    Wow I never actually understood any of that until now and to be fair most ordinary people wouldn’t have. It’s amazing how one sided the politicians and media in this country really are…..they’re like the ugly sisters who continually seek to belittle and undermine truth for their own ends.

  8. Henry Aconit says:

    By trying to combat this myth, we risk getting stuck in a plethora of facts and figures which will bore our fellow doubters to sleep and they’ll still vote NO, (possibly).

    Therefore, I suggest when anyone brings it up, just ask them…

    To which Government have those banks paid all their taxes to since their inception?

    Answer = UK.

    So, if that’s the case and the banks are actually SCOTTISH, then why on earth are they paying taxes to the WRONG government?

    Conclusion, the UK government must owe (for RBS alone) 286 years worth of corporate tax receipts to the Scottish Government. Which I’m sure would be enough to buy back the bank, refund the ‘generous’ English taxpayers and still have a shitload left over for beer and kebabs.

    TL;DR
    If the banks are Scottish then the UK government owes Scotland every single penny of tax they have paid to them for the last few hundred years.

  9. Willie Wilson says:

    Very well summarised, Gordon. This story is now quite old, but has been the subject of even more lies and misinformation than any other, not just from Project Fear, but from the entire mainstream press and the BBC as well. Thus it is vital that we keep on repeating the true story over and over again…..at least for the next year!

  10. David Halliday says:

    One of the best-researched and clearest articles I have read on the topic. Thank you.

  11. Jeanne Tomlin says:

    I have to disagree slightly with one comment in your article: ‘However, we think that it is almost impossible for the former Chancellor not to be aware that this argument is baseless.’

    No, not “almost”. There is no way he isn’t aware that this is fallacious (polite word for a lie). He has to be wall aware of it since, as you point out, reports show that British banks account for £640 bn of the US Federal Reserve bailout money.

  12. Gordon MacIntyre-Kemp says:

    Just for clarity the New Statesman article linked to in the text is factually correct but the headline has a $ sign when it should have a £ sign.

    it says >British banks account for $640 bn of Federal Reserve bailout money< when it should say British banks account for £640 bn of Federal Reserve bailout money.

    In US dollar terms it was over a trillion.

    • jason merritt says:

      It wasn’t a bailout, I can’t believe you can publish this. The fed lent the banks money in exchange for collateral, they also lent money to French and German banks.

      They did not take a stake in the banks in exchange, that’s a bailout

      • Gordon MacIntyre-Kemp says:

        Jason the bail out packages included loans and equity stakes – one without the other would not have worked – I make it clear that the Fed contributed to the overall bail to package. Actually the FED contributed over $1 trillion to UK banking sector bail outs. Capital investments are also supposed to be paid back when shares are sold so both loans and capital were deals that were to be paid back in some way. The key point though is that Barclays got loan and capital just like everyone else but nothing from UK. You are trying to argue a technicality when the truth is plain for everyone to see.

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