Independent Scotland’s banking system risks Iceland-style collapse

Banking system of an independent Scotland risks Iceland-style meltdown, leading credit rating agency Standard & Poor's (S&P) has warned.

S&P said that it would be very challenging for Scotland to support its massive banking system without the support of UK Treasury and the Bank of England. It added that the banking assets of Scotland would be nearly twelve times as big as the country's total output.

The credit agency pointed out that Scotland's banking assets would be far bigger than the size of banking assets of Iceland in 2008, when its whole banking system collapsed, leaving thousands of savers in the lurch.

In a recently published report, S&P said, "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."

It added that if an independent Scotland joins a currency union with the remaining UK, regulation would likely remain under the BoE and financial services compensation scheme coverage would remained the same. Otherwise, if it adopts the euro, Scotland would have to establish its own deposit insurance arrangements.

Pro-independence leaders are saying that an agreement will be struck that will allow the BoE to keep on setting interest rates and acting as a lender of last resort for the entire UK.

Many big businesses like oil giant Shell and Fund management firm Standard Life have openly said that they wanted Scotland to remain a part of the UK. Shell CEO Ben van Beurden has said Scotland should remain in the UK as it would allow the country's views to be heard in the European Union; while Edinburg-based Standard Life has warned that take any action, including moving to England, if Scotland separates itself from the UK.