Speaking at the BSA annual conference in Manchester today, chairman Graham Beale (pictured) said proposed changes to capital requirements have “far reaching consequences on the mutual model”, and that forcing building societies to use ammended versions of capital raising vehicles that are designed for use by PLCs risks compromising the interests of members and destabilising the sector.
Beale also hit out at the Financial Services Compensation Scheme levy for penalising the prudent.
He said: “The mutual sector must be regarded as a distinctive, proper, complete sector in its own right. We should guard against amended versions of capital instruments designed for the plc sector but which introduce to the mutual sector the instability that led to the destruction of many PLCs in the first place.”
Beale added: “There has been a reaction from regulators across the globe to increase the quality and quantity of capital held by financial institutions. Around 85 per cent of building society capital is of the very highest quality – it is retained profits.
“However, modern mutuals need to be able to proactively manage their capital base, and have traditionally used PIBs for this purpose. Although the BSA has a strong legal opinion that PIBs meet capital definitions, the FSA is not prepared to accept that PIBs count as either core tier one capital or tier one capital in the future.”
Beale pointed to innovations by building societies like West Bromwich,Yorkshire and Newcastle in developing the concept of profit participation deferred shares along with a contingent version of the instrument.
But he warned: “It has yet to be proven that these instruments can be used in any situation other than the restructuring of a balance sheet and it is therefore clear that whilst this innovation will be helpful in particular circumstances, it is not the universal answer to the replacement of PIBs.”