His comments should help ease concerns about capital flight from Scotland and Scottish financial institutions in the event of a vote for independence on September 18. The Scottish government says it would try to keep sterling after independence under a formal currency union with the remaining UK but the main Westminster parties insist that they would not agree to such a pact. Continuing to use sterling without a formal currency union could leave Scotland without an effective lender of last resort, potentially raising doubts about the safety of its banks. Any expectations the new state might create a separate currency could prompt people who want to retain sterling to move their funds elsewhere. Economists at Swiss bank UBS said last month that British banks face a serious risk of depositors at Scottish institutions shifting their money south of the border after a Yes vote. Asked about the UBS report, Mr Carney acknowledged that uncertainty about the currency arrangements could raise financial stability issues”. But he made clear that a vote for independence would not affect the central bank’s commitment to stand behind the financial system in Scotland, at least until independence was actually achieved. “Whatever happens in the vote, the Bank of England will be the continuing authority for financial stability for some period of time, certainly over the interim period, and we will look to discharge our responsibilities accordingly,” the governor said “We have contingency plans we develop...I would underscore in terms of our responsibilities for financial stability we have a wide range of tools and plans,” he said. Mr Carneys comments suggest that the bank has drawn up contingency plans in case there is a need to provide emergency lending to Scottish banks in the case of deposit flight in the immediate aftermath of the referendum. He made specific reference to the fact that some central bank responsibilities are discharged jointly with the Treasury. This is likely to refer to so-called emergency liquidity assistance, which is provided to lenders at risk by the bank in conjunction with the Treasury, given that it puts taxpayer money at risk. The bank provided ELA to Royal Bank of Scotland and HBOS in 2008-9 during the height of the global financial crisis. The covert programme of support reached an intraday peak of £61.5bn and was only disclosed in late 2009, a year after it was initiated. Pro-union politicians seized on Mr Carney’s remarks to put pressure on Alex Salmond, Scotland’s first minister, to identify a favoured “Plan B” for use if post-independence currency union with the UK proves unattainable. “[Mr Carney’s] carefully worded response shows there is an issue concerning currency and financial instability if Scotland votes for independence,” said Annabel Goldie, Conservative member of the Scottish parliament. “This lifts the veil on Alex Salmond’s belligerent denial and wilful refusal to clarify his currency Plan B.” However, Mr Salmond insists that while there are other options for Scotland, including continuing to use sterling without a formal union, he is sure that London would eventually see a shared pound as in the UK’s interest. Yes camp strategists say identifying a Plan B could actually increase the possibility of capital flight by putting into question Edinburgh’s commitment to formal currency union. The UK government has denied contingency planning for a Yes vote and has refused requests from Scottish ministers to discuss how independence would be implemented. However, the central bank has already had a number of technical discussions with Scottish officials on issues surrounding the vote. “Well done to the governor of the Bank of England for behaving responsibly where the Westminster parties are refusing to behave responsibly,” Mr Salmond told the BBC.
Posted on: Thu, 14 Aug 2014 06:55:08 +0000
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