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Ray Perman’s The Rise and Fall of the City of Money tells the story of Edinburgh banking as it went through this dramatic rise and fall. Perman is a former financial journalist in Edinburgh and London who is now firmly placed in the upper echelons of Scottish civil society, as director of the David Hume Institute from 2012 to 2017 and a current fellow of the Royal Society of Edinburgh. The Financial Times picked out his study as one of its best books of 2019.

The tale Perman recounts is one whose importance has still barely registered in the country’s political and cultural discourse — the Scottish Parliament has only debated Scottish banking once since 2008. While a febrile debate about Scottish political sovereignty has been in progress over the past decade, Scotland has lost its independent financial center in Edinburgh, swallowed up whole by the City of London.

Bank of Scotland’s old headquarters on the Mound is now, as Perman remarks, nothing more than “a venue for corporate entertaining.” The bank, which had already merged with Halifax before the crash, has become a Lloyds subsidiary. RBS is still officially independent, but its HQ at the Gogarburn on the outskirts of Edinburgh — where former RBS CEO Fred Goodwin used to park his private jet between trips to watch Grand Prix races in Abu Dhabi — has become “an incubator for 80 entrepreneurs starting up companies.”

In February this year, the Royal Bank Group announced that it was officially changing its name to NatWest Group, offering further confirmation of something we already knew: Scottish banking is now directed from London. As Perman observes, Edinburgh “can no longer claim a more important banking presence than, say, Manchester or Leeds.” Any prospectus for a postcapitalist Scotland, inside or outside the Union, must reckon with the role played by Scottish finance in the country’s economic development, and with what the end of Edinburgh’s status as an independent financial center means for Scottish capitalism.

Origins of Scottish Banking

The Bank of Scotland was launched in 1696, eleven years prior to the Act of Union. It was that pre-1707 sovereignty which allowed BoS to set up its operations with Scottish notes and under Scottish law. The then-independent Scottish government also guaranteed the bank against losses and gave it tax-free dividends. Scottish banking was closely connected to the state from the beginning.

The country’s ruling elite sought entry to the Union after the failure of the Darien Scheme, a disastrous attempt to establish a Scottish colony in Panama in the late 1690s, which had been backed by about one-fifth of all Scottish currency in circulation. It proved to be good timing for them to reap the huge rewards of Empire. For example, integration into the British establishment allowed the newly formed RBS — established in 1727 as a unionist rival to BoS — to become banker to the British army. This was a key position from which to accrue financial advantages.

Following the defeat of the Jacobite rebellion in 1746, landowners who had supported the Rising had their property and titles seized, and RBS took charge of channeling the proceeds. BoS and RBS survived and thrived because of a dialectic stemming from the Act of Union: a distinctive Scottish banking sector rooted in the pre-1707 Scottish state on the one hand, its development within the integrated post-Union British state on the other.

The “bank wars” of the 1700s may sound faintly ludicrous today: the two Scottish institutions sought to undermine confidence in one another’s paper money by buying up stocks in their rival and demanding payment in coins. But the story shows how Scottish paper money had to go through trials and tribulations before it became fully accepted as a legitimate store of value. After Scottish finance had survived the bank wars and seen off the financial crash of 1797 — in which both banks stopped redeeming notes for coins (illegal at the time) — it could finally be said, Perman suggests, that “paper money had come of age.”

Staying Ahead

New competitors from Glasgow — a city just emerging as a powerhouse of the industrial revolution — soon became a threat to the two Edinburgh banks. They joined forces by establishing an “anti-competitive cartel” to undermine these west coast rivals, and always retained certain institutional advantages. For example, both banks handled Scottish tax revenues for the British state. Edinburgh’s place as an administrative and legal center within the Empire gave Scotland’s capital the upper hand when it came to finance, even if the greater part of the trade from the British colonies passed through Glasgow.

At times, Scottish competitors did overtake the two main banks, but these rivals usually built their models on greater risk, taking advantage of a bubble whose subsequent bursting became their downfall. Western Bank collapsed in the first global financial crisis of 1857, after a phase of dramatic expansion over the previous five years, “making reckless loans to companies on both sides of the Atlantic.”

The core business of the two old banks remained the “security of land,” and they were conservative enough not to immerse themselves too deeply in speculative booms, such as the frenzy to finance American railways at the end of the nineteenth century. In the crucial period from 1876 to the end of the First World War, they kept English competitors at bay with a “gentleman’s agreement” not to step on Scottish terrain, and vice versa.

After 1945, a process of monopolization produced five big London banks, the smallest of which was bigger than all the Scottish banks put together. In that context, RBS and BoS could only survive through mergers and acquisitions. Within twenty years, eight Scottish banks had become three. The days of a diverse and competitive Scottish banking sector were over.

In the case of RBS, the bank’s 1959 merger was effectively a takeover by another Scottish institution, National Commercial. As Perman observes, that merger brought an end to “the near-feudal reign of the Dukes of Buccleuch,” who had been governors of the bank continuously since 1777. The present Duke of Buccleuch is one of Scotland’s biggest landowners. Old money has been a cornerstone of the Edinburgh banks since their birth, and still is today.

Great Men or the Big Picture?

Questions arise about Perman’s account when it reaches the most recent period of Scottish financial history. Although his book is full of enthralling stories about the characters involved in Scottish banking, he does have a tendency to exaggerate the role of such individuals in shaping events. This inclination towards the Great Man theory of history causes him to neglect major transformations in the world of finance, such as the end of the gold standard in the early 1970s, Thatcher’s financial “big bang” of the 1980s, and a shift in the orientation of finance away from manufacturing to personal loans — and finance itself — as deindustrialization accelerated.

Perman implausibly suggests that future RBS chief executive George Mathewson helped stave off riots in Scottish cities under Thatcher through his leadership of the Scottish Development Agency in the 1980s. He presents Mathewson’s stint at the helm of RBS from 1992 to 2000 as the start of a “cultural revolution,” resulting in the bank’s transformation into a global powerhouse by the end of the decade. Mathewson’s management style may well have been an important factor at RBS itself, but Perman misses the wider transformation of the economic environment — deregulation, financialization, and globalization in Britain and the world — or at least does not give it sufficient attention.

Perman’s conclusion rightly excoriates the role played by executives at RBS and BoS in the 2008 crash. Both banks ignored warnings about over-leveraging and high exposure to toxic housing-market debt. Their leadership teams sought to hide the full extent of losses while continuing to pay themselves lavish bonuses. When the collapse of Lehman Brothers punctured this state of denial, with a record-breaking £45 billion government bailout of RBS carried through weeks later, the board still refused to fall on its sword.

However, Perman appears to believe that things might have been fundamentally different, if only Scotland’s bankers had “learned from the way Bank of Scotland forced William Cadell to resign in 1832, or Royal Bank acted against John Thomson in 1845.” The implication is that the reputation of Scottish banking for “prudent management” could have been salvaged, if only there were more competent (and less megalomaniacal) individuals at the helm of these two institutions.

All the evidence points in the opposite direction: neoliberal globalization had created a systemic drive to expand or die. The various governments, auditors, accountants, regulators, and shareholders were just as guilty as the bankers of looking the other way during the bubble. Although both Scottish banks incurred monumental losses, there was very little in their behavior that could be considered criminal in the strict sense. Such recklessness was standard practice within the framework of rules governing the global economy.

At one point, Perman notes that Mathewson and Peter Burt, his counterpart at BoS, had a clear understanding that their banks would be swallowed up by rivals if they didn’t engage in mergers and acquisitions. Both Mathewson and Burt finished their careers feeling that their work was effectively done, with RBS having taken over NatWest in 2000, while Bank of Scotland merged with Halifax to form HBOS the following year. The business logic underpinning these moves is crystal clear, even if Perman erroneously concludes that it was a “detachment” from “the history of their institutions” which drove such careless expansion.

After the Crash

Perman’s concluding passage captures his emphasis on ideas over material forces: he highlights a new attempt by the Church of Scotland and the Islamic Finance Council UK to make Edinburgh “the Davos of the ethical-finance world,” and suggests that Adam Smith’s Theory of Moral Sentiments must be taken just as seriously as his better-known work, The Wealth of Nations. Moral sentiment is all well and good, but the reality is that bankers will respond to the bottom line on their balance sheets unless the rules of the game are rewritten.

Although Perman is right not to sugarcoat the end of Edinburgh’s status as an independent financial center, his conclusion lacks nuance. His focus on the city’s bourgeois prestige — the movement of “key people” at the top from Edinburgh to London — misses the broader dynamics of the 2008 crisis, to which Edinburgh was no exception. Pronouncements of the end of neoliberalism turned out to be premature, as state intervention stabilized Britain’s financial regime.

The key decisions in the world of banking may well be made down south now, and Scotland’s capital may have lost some of the glitz that it enjoyed before the bust. However, Edinburgh remains a significant site for asset management and insurance. The internationalization of its universities, the growth in passenger numbers at Edinburgh Airport, and the dominance of the urban economy by tourism and hospitality all bear witness to a city that has become more dominated by global capital since 2008.

Property prices and rents boomed in the 2010s, with wealth inequality reaching new peaks, as Airbnb became a symbol for commercial exploitation of the city’s built environment. Behind rising urban land values and tourist saturation there were debt obligations to banks — perhaps less showy than in the past, but just as firmly established as ever in the city’s economic life. “Security” of land and property — the beating heart of both Scottish banks, according to Perman, but especially of HBOS — has, if anything, grown more important in Edinburgh since the Great Recession.

That crisis, unlike the Wall Street Crash of 1929, did not lead to a new model of capitalist development. Governments, central banks, and financial institutions simply tried to reinflate the asset bubble, pumped up by trillions in liquidity, euphemistically referred to as “Quantitative Easing.” Scotland’s distinctive contribution to global finance may now lie in the past, but financial hegemony has endured, in Scotland and elsewhere. The industry remains Edinburgh’s biggest private employer.

No Longer Scotland’s Problem?

Despite its analytical shortcomings, Perman’s detailed and well-researched account does provide us with the raw materials for a more structural analysis, and a proper debate about the role of banking in modern Scotland. This debate is especially important now that a fresh crisis with all the hallmarks of a Great Depression is upon us.

While that crisis did not begin in the realm of finance, the COVID-19 pandemic has certainly demonstrated how vulnerable the financial system remains to a systemic shock. Central banks have taken unprecedented emergency measures, far surpassing in scale those of 2008, to rescue financial markets from total collapse.

Edinburgh, a property developer’s dream, has suddenly found itself thrown into a crisis much deeper than the one it experienced a decade earlier. The pandemic has laid waste to the tourism and hospitality sectors that the Scottish government and Edinburgh City Council had been cultivating so heavily. This has the potential to become the real “fall of the city of money.”

Are Edinburgh and Scotland now ready for a post-financialization era? In the 2014 independence referendum, RBS let its unionist roots show, warning in the final stages of the campaign that it would move its headquarters from Edinburgh to London if the Scottish people voted Yes. If Perman’s analysis is correct, that would have been little more than a cosmetic change in any case after the 2008 crash.

From a pro-independence perspective, there is a positive way of looking at the fact that RBS and HBOS are now for all practical purposes London banks. If the two institutions were included on the financial balance sheet of an independent Scotland, its total banking assets would amount to a staggering 1,254 percent of GDP, much higher than Iceland’s exposure at the time of the 2008 crash (880 percent of GDP). But with responsibility falling to the UK Treasury and the Bank of England, an embryonic Scottish state would not have to pick up the tab in the event of a future banking crisis.

Lack of Ambition

However, that argument also suggests a certain paucity of ambition. If “Scotland’s banks” are now really part of the City of London, they can no longer be re-purposed to become part of the solution for the country’s chronic structural weaknesses. Scotland has the lowest number of domestically owned businesses of any region in the UK. Its rates of investment in public infrastructure and R&D lie in Europe’s bottom quintile, and the Scottish economy is hugely over-reliance on services, which is why on some metrics it has suffered the worst economic hit from the pandemic of any UK region.

Serious financial muscle would be required to make the long-term, strategic investments necessary to turn that around. The prospect of carrying out such changes is surely one important reason for becoming independent in the first place.

In practice, that kind of ambitious prospectus for independence has never been on the cards, as least so far as the dominant forces in the Scottish National Party (SNP) are concerned. Even though bankers had a toxic public image after the events of 2008, the Yes side made little attempt to push back against the unionist assault. It offered no vision for a different kind of banking system, and raised few questions about why the banks had been able to drag the whole country into their mess in the first place.

In hindsight, the 2014 referendum came too soon after the crash for a proper debate about Scottish banking during the fever-pitch atmosphere of the campaign. The dominant narrative around the banks was one of paralyzing fear, and the SNP was not going to be the party to challenge it under the leadership of Alex Salmond. Salmond, an oil economist by training, was a onetime RBS employee, who had infamously sent a letter to Fred Goodwin praising him for what proved to be the disastrous takeover of Dutch bank ABN-AMRO in 2007.

While the SNP had long since ditched talk of Edinburgh joining a financial “arc of prosperity” from Dublin to Reykjavik after independence by the time of the referendum, the official Scottish Government White Paper for independence could still speak of financial-sector regulation being “discharged on a consistent basis across the Sterling Area,” as part of Salmond’s plan for Scotland to remain in a currency union with the rest of the UK.

Visions for Independence

Since the referendum, when the Yes campaign fell short, there has been a polarization within the independence movement over the question of the banks. Salmond’s successor Nicola Sturgeon appointed Andrew Wilson, a corporate lobbyist and former RBS executive under Goodwin, to chair the SNP’s Growth Commission report. Wilson went on to make what critics have referred to as a bankers’ case for independence.

He set out a plan for an independent Scotland that would “mirror” UK financial regulation and carry on using the UK pound informally (a model known as “Sterlingization”). Wilson himself did little to challenge his pro-banker image: when journalists asked him if he had written the report in order to please financial elites, he responded phlegmatically: “People on the Left say: ‘Who cares about the City?’ Well if you don’t care about investors and the people who fund you and create jobs, well then you don’t win, you don’t succeed.”

In opposition to Wilson’s blueprint, a broad left-wing alliance took shape under the leadership of George Kerevan, an economist and former SNP MP, who argued that the Growth Commission report would leave an independent Scotland “at the mercy of the banks.” In the end, the SNP’s 2019 party conference reached a compromise position, after a debate that revealed stark divisions between senior figures in the party who argued in favor of the report, and grassroots activists who opposed it. Members voted for a motion proposed by the leadership, but added an amendment insisting that a Scottish currency would be pursued “as soon as possible” after independence.

The debate highlighted a gulf within the independence movement between its grassroots and establishment wings. Andrew Wilson and his corporate clients proposed a form of independence that would involve using the tools of statehood to deepen financialization. In contrast, the grassroots movement saw independence as an opportunity for a breach with the economic status quo.

This largely reflects a class division typical of nationalist parties. On the one hand, the mass membership of the SNP, one of the largest parties in Europe relative to the population of its country, flooded in following the 2014 referendum. They had been inspired by their participation in what was a broadly left-wing mass Yes movement, which included a strong socialist current organized through the Radical Independence Campaign.

On the other hand, there is an established political class of full-time politicians and staffers, deeply integrated into a professional middle-class management culture and an Edinburgh-based corporate-lobbying network, who see themselves as (and act like) an embryonic Scottish ruling class-in-waiting. While the energies of the mass movement in 2014 have dissipated somewhat over the intervening years, a residue of grassroots organizing capacity remains, capable of applying pressure on the SNP leadership.

Post-Pandemic Economics

The 2020 crisis has buried the Growth Commission report, almost certainly for good. The extraordinary steps taken by central banks throughout the world to prop up their financial systems clearly expose the folly of the report, which proposed to do without such monetary tools by relying on a currency managed from London. If Wilson had got his way, a newly independent Scotland confronting a situation like this would have had to go cap-in-hand to the Bank of England or the IMF for emergency support.

As George Kerevan argued in March 2020:

The public relations fantasy of the SNP Growth Report — of an indy Scotland quickly and smoothly becoming another free-market industrial economy, trebling its growth rate, while happily using sterling—– is now defunct.

Wilson himself appears to have accepted that the game is up. In a blog on his company site, published (like Kerevan’s article) in the early stages of the pandemic, he accepted that “a banking crisis is a genuine possibility,” and that “the state will be larger” in our economic future: “Everyone’s world view will have to change now.”

It is too soon to make any definitive statements about the post-pandemic shape of the economy, but deeper integration of the state-corporate nexus seems to be on the cards. Although the big financial corporations are increasingly reliant on permanent intervention by their respective central banks to stay afloat, at the same time, they are pushing for laxer regulation of their lending practices. A bigger state could simply mean that “bankruptocracy,” as Yanis Varoufakis calls it — rule by bankrupt banks — becomes further entrenched.

One thing is clear, however. If the SNP is going to develop a credible economic prospectus for independence, it will have to grapple with the City of London’s financial grip on the Scottish economy.

As Ray Perman shows, Scottish banking used to be sufficiently flexible and dynamic that it could adapt and evolve in response to crises. Today, banking in Scotland — no longer “Scottish banking” — is monopolistic, parasitic, and directed from London. Any political project which sets out to slay the financial zombie will have to grapple with the innumerable ties of debt, dependency, and long-established elite networks that keep the banks firmly where they have always been: at the heart of capitalism in Scotland.