‘Scotland will never fully recover from banking crisis’

A former economic adviser to the Scottish Government has claimed that Edinburgh will never recover from the trauma of the 2008 banking crisis and branded the damage done to the city’s banking sector a “tragedy”.

Professor John Kay, who was a member of the Council of Economic Advisers until 2011, said the loss of 10,000 Edinburgh Royal Bank of Scotland and Halifax Bank of Scotland jobs to London were as a result of the crisis was irreversible.

Both banking giants narrowly avoided bankruptcy through multi-billion taxpayer-funded bailouts in October 2008 and have since shed at least 90,000 employees worldwide.

Mr Kay, who also chaired a UK Government review of the equity markets in 2012 and is a visiting professor at the London School of Economics, said: “We are never going to recover the position that we had for centuries in banking, and that’s a tragedy.”

Speaking to The Herald newspaper, Mr Kay added that he felt it would to “take another crisis” before the UK’s banking sector is properly reformed.

He believes key post-crisis reforms have been weakened as a result of the “power of the investment banking lobby in Westminster”.

The RBS executive team, led by New Zealand-born chief executive Ross McEwan and HBOS’s surviving brands, Lloyds Banking Group, are run by Portuguese born banker Antonio Horta Osorio from offices in the City of London.

“I would concur with John Kay’s view,” said Rob MacGregor, national officer for the finance sector at the trade union Unite.

“The damage to the banking industry’s reputation is unlikely ever to be repaired – and it certainly won’t be repaired under the current generation of bankers. The crisis and the mis-selling scandals that have surfaced over the past seven years have fundamentally ruptured the relationship that consumers once had with banks. I’m afraid that the trust that people once had in banks has gone forever.”

However, Mr Kay did stress that Scotland was doing better in areas of financial services beyond banking, notably asset management.

He added: “The fact Edinburgh asset management wasn’t much into private equity and hedge funds before 2008 was, if anything, a good thing.”

Also acknowledging Scotland’s finance sector’s strength in diversity, Owen Kelly, chief executive of industry organisation Scottish Financial Enterprise, said: “Scotland’s diversity as a financial centre – we’re not just providing banking but also asset management, pensions, insurance, asset servicing all kinds of other services – has given us resilience. In terms of job numbers, we are roughly where we were in 2008 – a much better outcome that some were expecting.

“People thought a lot more jobs would go, with some estimating as many as 40,000. We’ve seen the industry reconfigure for new market conditions.”

Mr Kelly pointed to successes such as Tesco Bank, which was founded as a standalone company in December 2008 and whose Scottish staff has grown to 3,000.

He also pointed to financial planning and investment firm BlackRock’s decision to double the number of its staff in Edinburgh to 550 people over the past three years.