An independent Scotland faces a banking crisis…what does HM Treasury do?

One of the arguments around the Scottish referendum on independence is centred on its banks. These are, simply, ginormous at around 1200% GDP. There is no way that an independent Scotland could, if push came to shove, bail them out. QED, don’t take the risk. Stick with the Treasury and the UK…

Hmm. Not quite as simple as it seems when you look at Ireland.

The Irish banking collapse of 2008 saw us borrow money hither and yon, from the IMF, the EU, and …the UK. The UK lent us money to defray this, as did the Danes and the Swedes. Why? Bilateral trade. These nations trade a lot with us and we with them. And its not good for your exports if the trading partner is utterly bankrupt, so best to lend a hand. A soft hand.

Ireland accounts for about €27b of uk exports, Scotland for about three times that from the rest of the UK. So, and independent Scotland would be a large and important trading partner with the rUK, and not one whom the Treasury would wish to see go under. Hence, were push to come to shove, despite all the warnings and threats, it would be in the best interest of the rUK to extend soft loans to Scottish banks and the government in the event of a rerun of 2008. Nothing political, just business.