The banks: what would it mean if they went down south?

To me there appear to be two routes via which Scotland gains from having the big banks here. One is that they contribute to what should be an open, transparent, competitive and efficient banking system for individuals and SMEs - and provide access to a wider range of banking facilities (including investment banking) for the larger corporates. The second is when the fact of head offices being in Scotland means that senior, high-earning, staff are based here and key decisions are taken here, leading to purchases within Scotland of key goods and (in particular) business and financial services.

This second benefit is analogous to the multiplier effect from HQs that has been much assessed and debated in the past. Having senior staff here does add to the demand for high quality facilities (housing, schools, restaurants, designer shops, golf clubs, etc.) and thereby means that it should be easier to attract more of their ilk to enjoy the living conditions. This can lead to the maintenance of career paths in Scotland for those moving through the corporate ranks - not just banking - encouraging continuity of employment in Scotland and hopefully new innovative company creation by those with an entrepreneurial bent.

The purchase of high level services in Scotland - solicitors, forensic accountants, actuaries, chartered surveyors and the like - when decision-making takes place at the Scottish HQ should result in such top quality services being available more widely for businesses across our economy. Top professionals find interesting and rewarding work here and are attracted to move north or stay. Their juniors see good reason for staying and progressing here. The resulting enhanced business and financial services sector should be a more efficient business sector generally.

However, as I have argued before, the centre of gravity of RBS and I suspect Lloyds moved south some years back. The main homes of their top staff are elsewhere, with only an occasionally occupied pied-a-terre in Edinburgh: and those big purchasing decisions are now taken in London or wherever with use made of English rather than Scottish high-level professionals. The multiplier effect of an HQ that exists only in theory rather than practice will be much reduced.

As a consequence, what really matters now regarding the Scottish banks is that they provide on a continuing basis quality and competitive retail and SME banking along with the access to extra services that large corporates require. This can, I suggest, be equally well achieved with HQs elsewhere. Indeed having a Scottish-specific centre focussed on provision of the banking services appropriate for Scotland, and better understanding Scottish business and governance, could well lead to more apposite and effective products and services for households and companies.

Of course, as the Holyrood Economy Committee has rightly stressed, we need other competitors in these banking markets and there are signs of these emerging. The fact that Tesco and Virgin have their registered offices in Scotland is excellent news for the much needed diversification of the Scottish banking scene, as is the growing presence of HSBC. Having five, six or more diversified players in this market would be excellent news for households and SMEs; " relationship banking" could become once more a fact rather than a hope. The focus should be on what really matters for Scotland - in terms of SME investment as well as credit and related services for Scots.

One plus of losing HQs should be the loss of the associated risks. These are primarily in the investment and large corporate banking arenas and would go south with the formal HQs. One main reason why a sterling currency union is seen by many as unworkable relates to these risks and the role of lender of last resort. With these banks HQ'd in London the Bank of England would clearly be the responsible body in the event of independence and a currency union.

Of course this one change would not lead inevitably to it becoming possible to negotiate a currency union arrangement with Governor and Chancellor. Many related issues would remain to be resolved. Also this is not all about the banks, even so far as the financial sector is concerned. There is considerable cause for concern regarding the potential flight of other major financial services companies, those with head offices and significant decision-making, etc. based here. It may help if we focus on first the value added plus multiplier effects which we seek to retain and second the specific financial service activities which bring substantial benefit to Scotland. That should be our major concern, not where RBS has its formal HQ.

Jeremy Peat is director of The David Hume Institute