Scottish banks could be plunged into an Iceland-style crisis in an independent Scotland

Major report from a leading credit ratings agency draws stark parallels to Iceland's 2008 financial collapse in latest blow to pro-independence supporters

Scottish banks could be thrown into an Iceland-style financial crisis in an independent Scotland, according to a major ratings agency.

The stark warning was issued by Standard’s & Poor after they calculated that the assets of Scottish lenders would be more than 12 times that of the entire country’s economy – far higher than Iceland’s banks before their meltdown.

It means that the government would likely be unable to maintain savings in the event of a financial collapse without the support of Westminster.

Although Westminster has insisted that Scotland would operate entirely independently if it votes yes in September’s referendum, Standards & Poor said it would be “challenging” for Scottish banks to function properly in such circumstances.

The report from the ratings agency said: "If an independent Scotland were to join a currency union with the remaining UK, we assume that regulation would remain under the Bank of England and that financial services compensation scheme [FSCS] coverage would be unchanged.

“Alternatively, Scotland would very likely be required to set up its own deposit insurance arrangements if it adopted the euro”.

It is the latest warning to First Minister Alex Salmond, who has insisted that the Scottish economy is strong enough to operate independently.

Prior to the financial crisis, he referred to Iceland as part of an “arc of prosperity” which showed small economies could flourish.

But in the 2008 crash savers lost billions when the Icelandic government was unable to bail them out as assets totalled 880 per cent of GDP.

And according to recent estimates, banks in an independent Scotland would have even higher assets worth 1,200 per cent of GDP.

Supporters of Scottish independence have suggested that a deal could be struck which would allow the Bank of England to continue setting interest rates and act as a lender of last resort for the whole of the UK.

Others have claimed that joining the EU would allow the Scottish economy to thrive. But according to Standard’s & Poor, even membership to the EU would not protect the bank’s assets in the event of a collapse.

A spokesman said: “These arrangements would likely be unfunded, leaving the comparatively very sizeable deposit bases of the largest Scottish banks backed with an implicit guarantee by the Scottish government.

“In our view, the willingness and ability of a future Scottish government to support its banking system is challenging at this point”.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
News
people
Voices
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
2015 General Election
May2015

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Project Administrator

£16000 - £19000 per annum: Recruitment Genius: A Project Administrator is requ...

Recruitment Genius: International Trade Advisors - Hertfordshire or Essex

£30000 - £35379 per annum: Recruitment Genius: The company is based in Welwyn ...

Recruitment Genius: Operations Controller - Response Centre

£20000 - £22000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Resource and Recruitment Manager

£25000 - £30000 per annum: Recruitment Genius: Resource and Recruitment Manage...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn