Economist suggests independent Scotland would have failed in banking crisis

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By Andrea McCallum

A TOP UK economist has claimed that banks would have failed during the banking crisis if Scotland was an independent nation.

John Kay, a member of the Scottish government’s Council of Economic Advisors, said Scotland would not have survived the bail-outs of RBS and Lloyds.

Kay is due to discuss the ideal solutions to the banking crisis to the David Hume Institute in Edinburgh on Tuesday.

He said: “The balance sheet of RBS is so large that it would have been a mistake for an independent Scottish government to take on this liability.

“It could not have sustained something of that magnitude,”

Mr Kay believes the ideal solution to the banking crisis would have been for the UK or Scottish government to take control of the retail side of the banks – and their wholesale operations.

The structure would allow government directors to control the company until it stabilised.

He added: “It would have been ideal if there had been a legislative framework to make that possible.”

A Scottish Government spokesman pointed to the chancellor’s revised cost of the UK banking bail-out of £10 billion.

He said: “At the same time, the most recent pre-budget report has increased the Treasury’s estimate of North sea oil and gas revenues to £50 billion over the next six years – more than in the last six years.

“There are plenty of examples of independent countries of a similar size to Scotland who have managed their finances sensibly and prudently over a number of years and were able to use their position of strength to stabilise their economics.”

The talk will be chaired by Professor Donald Macrae, the chief economist at Lloyds TSB Scotland.

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