The Scottish banking system might collapse after the independence referendum, The Daily Telegraph citing Standard & Poor's reports. According to S&P, the banks’ assets exceed tenfold the country’s GDP. Scotland is unlikely to be able to support its financial institutions if a new crisis arises.
In case the country says yes in September referendum and joins the euro area, deposit assurance arrangements established by London might be unfunded. The new Scottish government could not protect the country’s savers without being backed by the United Kingdom.
S&P finds parallel with Iceland, where all the leading banks went bankrupt and were brought under control of the government. As a result, the authorities refused to settle the lenders’ debt, including deposit liabilities.
The rating agency noted that Icelandic banking assets were equal to 880% of GDP, while post-independence Scotland will face 1,254% of GDP.
Previously, Chief Financial Secretary to the Treasury Danny Alexander stated that the referendum will make the financial companies move their headquarters to the rest of Great Britain. He pointed out that it is the Bank of England and the British government which support the banking sector of Scotland so far. Thus, independent Scotland is not capable pull it off.
The referendum is slated for September 18, 2014. If the “yes” vote wins, the country will have its Independence Day on March 24, 2016.
