AN INDEPENDENT Scotland would be unlikely to be able to remain in the European Union in the wake of Brexit, but if it could it may be insulated from the destabilising effects of the withdrawal, a representative of the Bank of England has said.

Martin Taylor, a member of the Bank of England’s Financial Policy Committee (FPC) and a former chief executive of Barclays, made the comments while stating that the bank is too preoccupied with the ramifications of the EU referendum vote to consider the potential impact of Scottish independence at this time.

“I’m aware that people are thinking about [another independence referendum] but at the moment we’re not addressing it because it’s not happening at the moment,” he said.

“If a referendum was called we’d start thinking about it more seriously. At the moment we have a live issue - a very big one - which we’re concerned about.

“The question for me is whether it would insulate Scotland from the effects of Brexit or would it add another layer of difficulty.

“Suppose Scotland could stay in the EU if Britain left – which I don’t think would happen – that could add a layer of insulation.”

Mr Taylor said that despite the shock of the Brexit vote the UK’s financial system “has come through a turbulent year in reasonably good shape”.

He added that this is thanks in large part to the stringent criteria the FPC places on financial institutions to ensure they have enough cash set aside to see them through a financial crisis like that of 2008.

Last month the Bank revealed that Bank of Scotland owner Lloyds Banking Group as well as HSBC, Nationwide Building Society and Santander UK had all passed its latest so-called stress test, which used tough economic models to gauge whether the banks’ 2015 balance sheets were robust enough.

Barclays and Standard Chartered were deemed to have done enough over the course of 2016 to strengthen their capital bases while Royal Bank of Scotland (RBS), which initially failed the stress test, has had a revised capital plan approved by the Prudential Regulation Authority (PRA).

“We stress tested them very severely - it’s important to make the point that this was an even more severe stress test than we’ve done in the past,” Mr Taylor said.

“We hit them with a bigger hammer and made them jump over a higher bar. My colleagues in the PRA have agreed with three institutions some remedial stuff but basically the system came through well.

“Sometimes it’s the things that don’t happen that are informative. The way the system came through the shock of the Brexit vote was really quite telling.

“But for the work the banks have done, with our encouragement, to strengthen their resilience over the last few years we could have had a different sort of crisis and a more serious one. It’s important that people realise that.”

In relation to RBS, Mr Taylor noted that the PRA and the Bank of England are satisfied that if the bank continues to improve its capital position by, among other things, decreasing its cost base and getting rid of riskier assets it will be able to withstand an economic shock.

“If they are subjected to the stress we put them through they will be alright,” he said.

Despite the strength of the banking sector, Mr Taylor said that the FPC is arguing for a transitional period following the UK’s exit from the EU in a bid to stop the financial instability that would come if a number of the big banks decided to move their operations to mainland Europe.

This is something the House of Lords EU Financial Affairs Sub-Committee today announced it is also arguing for.

“The House of Lords is doing what we have been talking about, which is arguing in favour of a transitional period because that gives people time to plan,” Mr Taylor said.

“Suppose we know that Mrs May is going to trigger Article 50 in March and we don’t believe that a deal could be struck in the two years following that, we’d be faced with the possibility that Britain would be out in a hard way – I’m not saying a hard Brexit is the wrong way, but that would pose big problems for the banks.

“It takes a very long time for very big complex industries to adjust to new circumstances. Moving big numbers of people is very expensive and not very easy - banks have to make contingency plans.

“If I was running a bank and knew that I faced a hard stop in two years that’s one set of circumstances. If I knew that I had three or four years of transition beyond that I could plan in a more relaxed and less disruptive way.”