HERE’S a sobering thought: when Scotland becomes independent – hopefully in very short order – the nation’s banking system will be dominated by RBS. Much effort has gone into turning RBS around since its near-death experience in 2008. However, in all those years the bank has failed to make a profit, racking up a cumulative loss in excess of £50bn.

Given the bank remains in public ownership, and there seems little likelihood anyone will want to buy it any time soon, it is only prudent we should have a plan for Scotland’s second oldest financial institution. More to the point, how can we turn a liability into an opportunity?

I’d better point out, to start with, that none of what comes next represents official SNP policy. Nor should it be regarded as educated kite-flying. I’m just anxious to put on the agenda a subject that I think has been neglected and is likely to turn round and bite us if we don’t pay it attention.

RBS has been very badly served by its recent political masters, particularly George Osborne, our late and unlamented – particularly by the Tories – Chancellor of the Exchequer. Osborne was fixated in flogging off RBS as fast as possible in order to generate cash to help generate a bogus budget surplus. As a result, there was constant political pressure on RBS to sell off profitable assets or squeeze borrowers – anything, in fact, to generate a paper profit for five minutes, so George could dump the bank’s shares on the City.

In 2013, constant interference from Chancellor Osborne led to the abrupt resignation of Stephen Hester, the bank’s then chief executive. Hester had been hired in 2008 to replace Fred “The Shred” Goodwin, whose rank incompetence and breath-taking arrogance had taken RBS to the brink of insolvency. I’m no fan of Hester – his “dash for cash” policy effectively drove hundreds if not thousands of viable small company clients of RBS into unnecessary liquidation, in what has become known as the GRG scandal. However, by 2013, even Hester knew that RBS was not ready for a return to the stock market just to suit Osborne’s personal political timetable, so he quit in protest. Mind you, he trousered a leaving package of £1.6m.

With Hester out of the way, an impatient Osborne tried to sell off shares in the bank. But things went horribly wrong. A week before the sale, there was a rash of short-selling in RBS stock – very suspicious in itself. This drove down the share price by eight per cent on the morning the Treasury was due to offload some of its RBS holding. The short-sellers made a packet and the taxpayer lost circa £1.1bn. The Treasury swore blind there had been no leak. Believe it you like.

Stephen Hester was replaced as CEO by Ross McEwan, a craggy New Zealander. McEwan has continued Hester’s questionable policy of shrinking RBS down to a small, domestic, high street purveyor of mortgage loans and current account services (the latter generating income mostly from hidden charges).

Along the way, since 2008, RBS has sold off a swathe of profitable enterprises such as Direct Line Insurance. Incidentally, returning to a “traditional” retail bank focus hasn’t stopped McEwan closing local RBS branches – with scant regard to customer needs in rural areas like East Lothian.

RBS has also exited the highly lucrative investment banking business. Investment banking provides the financial plumbing that channels risk capital to manufacturing companies or infrastructure projects. It involves underwriting share issues, creating consortia to build windfarms, and brokering mergers. This is where the big profits are made.

Here’s my beef. This down-sizing strategy pursued by RBS is flawed. First, it is predicated on dumping non-core (often more profitable) bits of the lending business to concentrate on products where the market is already crowded with competitors. Second, down-sizing leaves RBS vulnerable to eventual take-over and breakup if privatised. Third, the only way of trading out of the immense losses RBS has incurred, and building capital, is through investment banking. That’s not necessarily an argument for staying in the investment banking sector (as has Barclays) but it is to recognise that’s where you make money. It is also the sector needed by an independent Scotland that wants to grow.

The perennial focus of Ross McEwan on cost-cutting and retrenchment has detracted from the bank developing a proper growth strategy. Much of McEwan’s time has been spent carving out 300 RBS branches under the Williams and Glyn brand, for sale to a competitor (under orders from the European Commission).

But there were no takers so McEwan has wasted £1.5bn on the project, mostly on a new IT system. Instead, RBS is to meet its EU obligation by stumping up a further £750m to subsidise smaller competitors. RBS customers please note: you are the folk who will end up funding this daft scheme.

RBS is set to publish its latest annual accounts on Friday. Analysts are predicting that net losses will jump to circa £6.8bn, up from £2bn in 2015. If so, total losses since 2008 will crest £60bn. This is in stark contrast with Lloyds, also bailed out by the Government back in 2008. Under CEO Antonio Horta-Osorio, Lloyds has returned to private ownership and profitability. Why the difference?

Partly because the Government’s bigger controlling share in RBS (81 per cent versus 43) made it an easier target for political interference. And partly because each bank had different problems. The HBOS bit of Lloyds had lent too much to commercial property developers. RBS had bought a wonky Dutch bank (ABN Amro) which left it with no capital to absorb losses on bad loans. Plus RBS is mired in US litigation that makes it a poison pill to buy.

Is there a way forward for RBS? One suggestion, from the leftish New Economics Foundation, is to break up the bank into 130 regional units, which would invest in local communities and small businesses to off-set the power of the City. This sounds attractive but ignores the cost of disaggregating the all-important IT systems, and still leaves the taxpayer to foot any US fines and legal bills.

Alternatively, RBS could be transformed into a mutual society, owned by its depositors. That has the possible advantage of escaping EU and WTO state aid rules and securing the bank against take-over. On the other hand, it does not address the bank’s core financial problem: lack of sufficient capital, an Achilles’ heel also afflicting the Co-op Bank.

In an independent Scotland, we’d have the option to hang on to our bit of RBS in public (or mutual) ownership, recapitalise it, reanimate its investment banking arm, and use it to grow the Scottish economy. This plan raises the danger of making the Scottish banking sector even more monopolised, so it would have to be balanced by stimulating a local savings bank system, as is normal in much of continental Europe.

Of course, post-independence, the UK Government might try to hang on to RBS. In which case, we’d have the ability to use our own banking licences and capital reserve rules to stimulate a new, competitive domestic banking system. Whatever route we take, the planning has to start now.