Bank of England FPC sheds light on plans for Scottish independence vote

LONDON, Oct 10 (Reuters) - The Bank of England shed light onFriday on some of its contingency plans if Scotland had voted infavour of independence last month, saying it was ready to supplyextra bank notes and pump extra liquidity into banks.

A record of the BoE Financial Policy Committee's Sept. 26meeting also showed policymakers were concerned that tail risksin financial markets were priced wrongly, and that this couldaffect how it sets banks' cyclical capital buffers later thisyear.

Scots voted on Sept. 18 to retain their centuries-old unionwith the rest of the United Kingdom. But opinion polls runningup to the referendum had been close, and on Friday the BoErevealed what might have happened if Scots had voted 'yes'.

"In the event of a 'yes' vote, and as a precautionarymeasure to back-stop sterling money market liquidity, the Bankwould immediately announce its intention to conduct additional(liquidity) operations in each of the two succeeding weeks," theBoE said.

"The Bank had in place arrangements to meet potentialincreased demand for Bank of England notes from holders ofScottish notes," it added.

The BoE said there could have been major effects on banksand insurers based in Scotland or with substantial Scottishassets and liabilities.

Elsewhere in the FPC record, the BoE also said more abouthow it would set new leverage ratios and counter-cyclicalcapital buffers for banks.

Banks are on tenterhooks over the leverage ratio they willhave to meet, with widespread expectation it will be higher thanthe 3 percent interim level proposed under a global bank capitalaccord known as Basel III.

The BoE said last week that it would give more details bythe end of this month after earlier plans to wait until nextyear had worried banks and legislators.

The BoE said on Friday that the FPC would meet on Oct. 15 todiscuss the level.

Last week the FPC also left the counter-cyclical element ofbanks' capital requirements at zero. But it noted that justbecause loans as a share of GDP were lower than before thefinancial crisis, this did not mean it might not choose to raisethe ratio in future. (Reporting by David Milliken and Steve Slater)