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Building societies and FSA in row over capital vehicles

The Building Societies Association says it “has strong legal opinion” that permanent interest bearing shares could be used by mutuals to meet capital requirements, but the FSA is not prepared to accept this.

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.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. This does not surprise me. The FSA never take into account anyone elses opinion. They are always right come hell or high water, unless it is hindsight, then they claim they could not be expected to know.

  2. As you say ‘anonymous 1:38’ the FSA always believe they are right, even when proven wrong.
    If they had a good track record getting things correct their arrogance would be more easily understood. As it is the more they are told they are wrong the more stridently they proclaim they are right. Rather betrays their insecurities which are the result of not having much experience within their ranks. They presumably realise their failings but cling desperately to their jobs.

  3. Julian Stevens 5th May 2010 at 2:14 pm

    If the BSA has strong legal opinion as to the correctness of its stance and the FSA still arrogantly (as usual) refuses to give any ground, then the only way to resolve the issue will be in court. It’s high time somebody stands up to the FSA and uses the law of the land against it. Talking of which…….

  4. Keith Simpson 5th May 2010 at 4:10 pm

    Unfortunately Julian there would only be one ‘party’ that would pick up the legal fees and that would be the downtrodden IFA.

  5. well if my prayers are answered and we have a conservative govt on friday the FSA will be academic anyhow. Although despite that welcoming thought i expect the clowns involved will all hang to their positions in the “new” organisation. Everything changes yet stays the same.

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