POLITICS

Bank Of England Had Dramatic Plans If Scotland Voted For Independence

10/10/2014 12:46 BST | Updated 10/10/2014 12:59 BST
Bloomberg via Getty Images
Mark Carney, governor of the Bank of England, pauses as he speaks during the Commonwealth Games Business Conference in Glasgow, U.K., on Wednesday, July 23, 2014. With less than two months to go before the Sept. 18 referendum on independence, the pound remains a key area of contention along with Scotland's membership of the European Union, pensions and social security spending. Photographer: Simon Dawson/Bloomberg via Getty Images

Mark Carney stood ready to flood the financial markets with millions of pounds in extra emergency funding if Scotland voted for independence, it has emerged.

The Bank of England was also prepared to stand behind bank notes issued by Scottish banks in a bid to reassure customers that there would be no immediate changes, according to minutes published today.

“Under current arrangements, Scottish banknotes are backed fully by their issuers’ holdings of Bank of England notes, UK coin and deposits at the Bank of England. This would have been a key public message in the event of a ‘yes’ vote,” the Bank of England said.

“A key element of the Bank’s contingency planning work concerned the potential provision of liquidity support to individual institutions,” it said.

The details, which were discussed at a meeting of the Bank's Financial Policy Committee (FPC) that took place days after Scotland voted to stay part of the United Kingdom, show the seriousness with which the Bank of England took the potential risks of the referendum.

The Bank's FPC also noted there were "significant" financial risks following a Yes vote in Scotland's independence referendum, which could have damaged an independent Scotland's credit rating.

mark carney scotland

Carney told reporters in August that the Bank had contingency plans in place in the event of a Yes vote winning, amid fears that such a decision would lead to a run on the banks. The Bank governor also pulled out of G20 talks in Australia so he could be in the UK for the referendum result.

“In the extreme, it was possible that the prospect of that risk materialising in the future could have threatened financial stability in the present. If depositors, policyholders and other creditors believed that an independent Scotland would adopt a new currency, they might have preferred not to take the risk that their assets might be re-denominated into that new currency,” the Bank's FPC said.

“If financial companies believed they would face currency mismatches and therefore potential capital losses in the event that Scotland adopted a new currency, they too might have preferred to reduce their exposures to Scottish assets,” it added.

In the end, the pro-unionists won the referendum debate as Scots voted by a margin of 55% to 45% to stay part of the United Kingdom.

If Scots had voted to break away, the Bank of England would have issued a statement "immediately reaffirming its responsibilities for financial stability, prudential regulation, banknotes and monetary policy in the entire United Kingdom, including Scotland, until legislation enacting independence came into force" in an attempt to reassure bank customers.

Asked at a press conference in August about the danger of a “deposit flight” from Scotland, Carney said: “Uncertainty about the currency arrangements could raise financial stability issues. We will, as you would expect us to have, contingency plans for various possibilities.”

The Bank of England governor then refused to disclose details, adding: “It’s never a good idea to talk about contingency plans in public, other than to assure people that we have contingency plans and I just underscore in terms of our responsibilities for financial stability we do have a wide range of tools and plans.”

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