THERE is a respectable argument that modern banking is a Scottish invention. George Heriot, a goldsmith banker in the early 17th century, provided James VI and I with substantial funding. Later that century, William Paterson, the Scottish adventurer, was involved in the founding of both the Bank of England and Bank of Scotland.

While the Bank of England was set up with substantial monopoly powers and specialised in loan finance for the government, Bank of Scotland always supported trade and business finance. Both banks continued after the Union.

With the formation of Royal Bank of Scotland in 1727, competition emerged in Scottish banking. With no central bank – the Bank of England would only take on that role in the middle of the 19th century – Scotland developed a “free” banking system, in which the industry consisted of a few large banks which were well capitalised, organised through branch networks, and stable. This was very different from England – small bank partnerships and goldsmith bankers were prone to failure.

A commendable characteristic of historic banking practice was the expectation that banks’ general managers would often have to post a performance bond. This was money they would lose if the bank failed.

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Suppose that was still the practice today. Banks are much larger and much more complex businesses. And so we are told that to attract the best talent and to ensure that they have incentives to act in the interest of shareholders, their senior managers need to be paid millions and then be given performance incentives which will often be substantially larger than their salaries.

Having a bonus culture without the old-style performance bonds means these senior bankers have “heads we win, tails you lose” contracts. Modern-day performance bonds, probably provided by an insurance company, might be a useful innovation.

Not that Scotland’s historic banking system was perfect. The collapse of City of Glasgow Bank in 1878 was the result of spectacular fraud – the bank had lent huge sums to closely related companies, which simply could not repay the money which they owed.

The bank’s accounts had carefully hidden that. At the time, Scottish bank shareholders still had unlimited liability – they were much more like sleeping partners in a firm than modern-day shareholders. About 1000 were bankrupted as the bank’s creditors tried to recover their losses.

When Scotland becomes independent, we should pay attention to those centuries of history – all the way up to the 2008 crisis and our response to it.

We should treat bankers as if they are all rogues, because even one or two rogues in a bank can destroy it. We should also require banks to be socially responsible.

(As an aside, I am delighted to see Michael Fry will be writing occasional articles on Adam Smith – and I hope sketching out much more of what went on during the Enlightenment. Smith argued that private virtue would support the public good. We want bankers to be skilful, patient in taking profits, and just in dealing with their customers.)

There is much we can learn from the experience of other countries, too. Canada – whose banking system was shaped by Scottish emigrants – and Australia have strong regulation, and almost no experience of dealing with financial crisis. Canada has set up its Banking Act so that it is renewed every five years – along with banks’ licence to operate. Socially damaging practices are banned; socially useful ones are added to what banks can do.

It is no accident that in 2012, when the UK Government decided it needed new leadership in the Bank of England, it turned to Mark Carney, the head of the Bank of Canada.

There is also the process for disentangling Scotland from the UK. NatWest is the only UK banking group registered in Scotland. One of the Project Fear stories from 2014 was that it would move its headquarters to London.

Probably it will. We can be quite certain it will keep its Royal Bank subsidiary in Scotland, but most of its investment banking operations are in London and it is largely an English bank. It makes sense for the group’s headquarters to be in London after independence.

More importantly, from the perspective of competition among banks and the sustainability of its banking system, splitting up Royal Bank – and perhaps also Bank of Scotland – could be helpful.

We should also look at Ireland’s experience. Ireland set up its own currency shortly after independence. There was no question of it taking on a share of the UK’s debts or acquiring some of the Bank of England’s reserves. It just went ahead and replaced UK institutions with Irish ones. Older readers may remember seeing Irish coins in change because they had the same design as British coinage.

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Those arrangements worked for about 50 years – the last years of the gold standard and then the dollar peg to gold keeping some element of commodity convertibility to currency. In the 1970s, that last link to gold was severed. Currencies started floating.

Buccaneering Irish politicians (and rather more cautious bankers) looked at the weak UK economy, and realised there were opportunities for aligning the economy more closely with

Europe’s. The result is that in the 2031 census, Ireland’s population will be higher than before the Great Famine.

A clean break with London might be just what Scotland needs.