Clydesdale free to ride note float

Bank of Scotland will be able to continue issuing its own banknotes, the Treasury said yesterday.

Three Scottish banks are allowed to issue their own notes - Clydesdale Bank, Royal Bank of Scotland and Bank of Scotland.

Under longstanding arrangements the banks have to lodge funds with the Bank of England to cover the value of their notes, but only for three days of the week. For the other four those funds can be invested elsewhere, gaining millions in interest.

However recent, and controversial, proposals would have required funds to be lodged with the Bank of England for the entire week, according to a report in The Scotsman.

This would have cost Clydesdale (a NAB subsidiary) and the other two banks up to £100 million a year.

Thanks to lobbying by those banks, and the Scottish government, the status quo will prevail.