Speaking at this year’s Building Societies Association Conference in Yorkshire, Hugh May, reading on behalf of the FSA manager of retail firms division Nick Lock, attacked building societies for their lack of awareness and inadequate risk policies over the last few years.
May said: “The fact remains that a number societies did not act sensibly to the onset of the crisis and some saw it as a business growth opportunity. We see that as a fundamental error, as was carrying on or even starting commercial and high risk lending even in 2008. This is partly why there are less building societies being represented at this conference than there was a year ago.”
The regulator also hit out at mutuals’ lending practices. May said: “We have seen unsustainable margins on prime lending, over-ambitious growth targets, a risk appetite too high or not adequately imposed by the boards. Riskier lending was fundamentally mis-priced and inadequate investment in risk management.”
May also attacked some building societies for their wholesale loan acquisitions: “There was also a failure to understand risk infection arising from acquired portfolios, a failure to evaluate the downside risks as well as the upside potential, as well as over-payment for subsidiary business lines.
“Societies have purchased what have turned out to be unmarketable securities and generally a slow reaction to market changes.
“Many warnings were included in messages that the FSA has given over and over again to societies – I refer you to speeches given in forerunners to this conference by John Tiner and Hector Sants. Clearly not everyone was taking note.”
BSA chairman John Goodfellow agreed that some building societies were in a weakened position and did not rule out further a repeat of the Dunfermline crash.
He said: “The time for only nice words by the authorities about mutuals is over. We need to see action, support and a desire to build a better future gaining traction in the minds of the Tripartite.
“Equally it is time to remove any lingering sense of complacency in building society boardrooms.”