S&P fears Scots banks are too like Iceland’s

AN INDEPENDENT Scotland would join Iceland as the only European governments which could not afford to support their banking systems, analysts at ratings agency Standard and Poor’s warned yesterday.

If giant banks like Lloyds and RBS kept their legal registration in Edinburgh, the sector’s assets would amount to more than 1,000 per cent of Scotland’s GDP.

This would have important implications for the banks as well as the government ­– currently the lenders’ credit ratings are propped up because the agency assumes they have the backing of the government.

If the banks remain based in Scotland after a vote for independence, the agency is concerned about their access to sterling from the Bank of England, as well as about the support the government could offer in a future crisis.

“We note a possible parallel here with Iceland, where in 2008 the national deposit insurance scheme could not honour claims when the country’s outsized banking system failed,” the Standard and Poor’s report said.

More from City A.M.

• More news from City A.M.