A chapter closes as the RBS bailout enters the history books

Those leaving school this summer to study economics at university will see the bailout of Royal Bank of Scotland as a piece of history.

They were in nappies when it happened. And today, in a way, history is what it becomes. The UK government is a shareholder no more.

The tranches of shares have been sold off at far less than they cost, from an 84% stake owned by the UK government down to zero.

But those looking to turn a profit on an investment are forgetting that is not what this was.

It was a rescue of a bank which, in 2008, could be counted as the biggest in the world. It had more than $2.2 (£1.63) trillion on its balance sheet.

For those young students of economic history, note that it was a source of pride for Scotland to host such a successful example of globalised finance.

The then First Minister, the late Alex Salmond, wrote as much, as he encouraged the chief executive, Sir Fred Goodwin, to take over the Dutch bank ABN Amro.

But it turned out to be riddled with unforeseen risk on its books.

Though less global, HBOS or Halifax Bank of Scotland, headquartered on the Mound in Edinburgh, had splurged lending around the UK economy.

It had acted as if, in the words of then Prime Minister Gordon Brown, there was "no more boom and bust".

Well, there had been a boom. And this was a bust - or there would have been if the UK government had not stepped in.

Royal Bank of Scotland was within hours of having to shut down, end its massively complex trail of transactions with other banks and stop issuing cash from its automated tellers.

Alistair Darling, who died in 2023, was the Chancellor of the Exchequer at the time of the RBS bailout

Alistair Darling, then the Chancellor of the Exchequer, told of the warning he received.

If RBS fell, it was hard to see how the West's banking system wouldn't go down with it.

By the next morning, a bailout had begun, to shore up Royal Bank of Scotland, first with £20bn, later with £25.5bn more.

Four months later, it announced a record UK annual loss of £24.1bn, with many more billions in red ink, including fines and penalties, before it eventually turned its next profit in 2017.

There would be guarantees, put behind hundreds of millions of pounds in assets, while it tore through them in a fire sale of debt obligations tied to tanking property markets.

Numerous properties were handed back by customers, including chains of hotels, restaurants and pubs, leased aircraft, office blocks, warehouses and factories.

The list seemed endless and endlessly daunting. The bank divided the good from the bad, and ran off billions of pounds in toxic financial assets.

It was told to sell Direct Line insurance and its US subsidiary, Citizens, having already sold a stake in Bank of China.

It sold its payments platform, exited the high-stakes, high-risk world of investment banking, and was told to hive off a share of business banking that it struggled to sell or to spin off, until it gave up.

Fred Goodwin was stripped of his knighthood after the RBS bailout

In Edinburgh, there was a palpable sense of shock, as RBS and HBOS both imploded and had to be bailed out.

Could the Scottish capital survive the loss of such financial titans?

They not only employed big staff numbers at their headquarters, but contracted with a supply chain of other professional services as well as transport, catering and numerous others who had come to depend on them.

Going too were the sponsorship deals ranging across sport and culture, including the city's festivals.

The history has been well documented.

What remains to be seen is the account and accountability of Fred Goodwin, removed from office in what he called a "drive-by shooting", later stripped of his knighthood and of his dignity as he hung on for a vast lifetime pension.

Many of the staff of Royal Bank of Scotland had invested in its shares for their pension nest-eggs, but saw valuations plummet to near nothing.

Nearly 17 years later, the story is of Edinburgh's resilience.

Its financial skills base continues to retain and attract big banks.

Its asset managers dodged the flak, and thrived, some more than others.

The city is now a centre of fintech, or financial technology, much of it spinning out from its universities.

It does not have the huge bank salaries of the top executives to pump up its property prices, but they're being pumped up all the same.

Education, technology and tourism have filled some of the gaps left by the banks.

New office accommodation for the Treasury at 1 Horse Guards Road in London was formally opened in 2002

But the shrinking of RBS, allied to changes to banking and the shift to working-from-home, have left Goodwin's prestige global HQ at Gogarburn, near Edinburgh Airport, with many, many empty desks.

That bailout helped, as it did for the whole UK and international economy.

It helped also that the late Lord Darling displayed the unflappable calm of an Edinburgh lawyer in steering the Treasury through the crisis. That quality was priceless.

The fact that there was political and public accountability for the bailout, expressed through the Treasury's shareholding stake, also helped it retain a foothold in Scotland.

On visits to the country, repeating their humble apologies, chief executives would acknowledge the bank had strong roots in Scottish banking tradition, even if they had gone badly awry.

They were careful not to complain that the dominant shareholder was a restriction on their freedom, forcing them to shrink further than some in the bank wanted and to curtail executive bonuses.

They stuck with the name until the evidence could no longer be ignored - that Royal Bank of Scotland was a deeply tainted brand.

Its Scottish customers remained loyal, perhaps because they cannily reckoned on it as a secure, state-backed place to park their pounds.

But elsewhere, the NatWest brand would take over as the corporate entity.

The UK Government, wielding its shareholder clout through the arms-length holding company, wielded it more lightly than might have been the case.

It could see that too much interference would further reduce the bank's market valuation.

It held back from the temptation to direct lending, at least overtly, into sectors that might have been politically helpful.

There are, perhaps, lessons to be learned before this era passes, about state stakeholding versus nationalisation, about the constraints it imposes and the unaccounted value it can generate if a company's political masters use their influence wisely.

For a European country such as France, such ownership, from energy to airlines, is common.

It offers both good and bad lessons in Scotland (Scottish Water and rural airports to Ferguson Shipyard).

But it is rare for the UK.

In edging towards an industrial policy protecting and promoting strategic sectors, which could soon see state ownership of the steel industry, it may become less so.

It could be a task for the Library of Mistakes, set up after the crisis in an Edinburgh New Town mews house by a group of the city's financiers, to learn the lessons of financial crises down the centuries.

One service that the state's stake in RBS and NatWest provided through those years has been as protection against takeover.

While hobbled, Royal Bank of Scotland and later NatWest, might otherwise have been snapped up by a rival, broken up and parcelled out.

That has not happened. Not yet, anyway.

Now fully in private ownership, as both an acquirer and a potential target, the next chapter of its story is poised to be written, two years shy of its 300th anniversary.