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‘Don’t force mutuals into plc straitjacket’

The Building Societies Association has attacked the “irrational pessimism” of regulators as they address the problems that contributed to the financial crisis.

At the BSA annual lunch last week, BSA chairman David Webster warned that regulatory changes risk forcing mutuals into a regulatory “straitjacket”.

He said: “There were certainly examples of irrational exuberance on the part of institutions in the run-up to 2007 but there are also currently examples of irrational pessimism on the part of regulators seeking to address the problems of recent years.

“It is crucially important that regulators see mutual institutions as at least equal to equivalent plc structures and acknowledge the differences, when appropriate, rather than force mutuals into a plc straitjacket.”

Webster said the vast programme of regulatory change, from the building society sourcebook to capital requirements and the break-up of the FSA, could potentially increase costs to the industry.

He said: “We are facing a complete overhaul of the regulatory system, all of which could potentially increase costs. The imposition of international financial reporting standards on even our smallest members will add costs over the next couple of years but will not add significantly to the transparency or usefulness of the annual accounts.”

Webster suggested that some changes to the regulatory landscape could be pushing reforms too far.

He said: “Does the regulatory revolution represent overkill? Certainly one might suggest the mortgage market review represents a regulatory solution to issues the market dealt with many months ago.”

Treasury financial secretary Mark Hoban was unable to attend the event as planned due to Parliamentary business, but Treasury director of financial services Alison Cottrell delivered his speech. She said building societies must face up to the new regulatory environment.

Cottrell said: “The combined remit of the FSA meant participants in financial services, the market and particularly the ordinary consumers of retail products did not always get the appropriate regulatory focus. The Government is committed to changing this.

“Adapting to the new world is a challenge, with greater competition for retail deposits, more intense supervision and tougher capital requirements. Building societies, like others, have to face up to those realities and evolve.”

Cottrell said the new approach will encourage responsible behaviour. She said: “This will be a more robust approach. It will recognise that consumers, Government and the financial sector have to behave more responsibly in future.

“The Government wants to see a mortgage market which is characterised by responsible, sustainable lending in which credit worthy households have access to a choice of mortgages from a range of competing providers. Given the significant role of mutuals in the UK residential mortgage market you have a really important part in this.”

Webster said building societies had demonstrated responsible lending and had lower arrears than the wider mortgage market.

He said: “Let us not forget that mutuals’ record on mortgage arrears is, proportionately, better than for the mortgage market as a whole. Generally, although not in every single instance, mutuals lent more sensibly through the boom years.”

Cottrell said although building societies did not cause the crisis, they have not been immune to its effects.

She said: “One building society failed, a number of others merged but many, I would stress, remained profitable.

“In the wake of the financial crisis we all, whether as individuals, as businesses, as financial firms, as regulators or as the Government, have to think differently, learning from our past mistakes and making changes to the way we operate.”

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