The Government says it would consider removing lending and funding restrictions placed on building societies if the sector feels they are too restrictive.
Under the Building Societies Act, building societies must ensure 50 per cent of their funding comes from retail deposits and that at least 75 per cent of their lending must be secured on residential property.
However, in a consultation paper published today, called the future of building societies, the Treasury says while it has no plans to amend the legislation at present, it is open to reconsidering the limits.
The paper says: “Building societies may decide that a natural extension to their business model is serving businesses as well as individuals in their communities, including supporting growth by lending to SMEs. If this was part of the sector’s strategy, then the Government would be supportive of this development and would be open to removing any constraints posed by legislation.”
The Government also plans to amend the Building Societies Act so that prohibitions applied to ring-fenced banks, as proposed by the Independent Commission on Banking, will also be applied to building societies. This means banks and building societies have to comply with the same requirements.
It is also proposing to apply the ICB’s loss-absorbency requirements to building societies in the same way as banks. The ICB recommends that primary loss-absorbing capacity of 17 per cent of risk-weighted assets is appropriate for large ring-fenced institutions, which could consist of common equity tier 1, additional tier 1 and tier 2 capital.
The paper says: “The Government does not believe that building societies should have different loss-absorbency requirements to banks and proposes to include building societies in any of the general loss-absorbency measures that apply to banks of a similar profile.”
Building Societies Association director general Adrian Coles (pictured) says: “I welcome the Government’s renewed focus on providing the right legislative framework to support a thriving building society sector in the UK. Our sector is diverse and provides services to around 25 million customers, through a model that is very different both in structure and ethos to the plc banks.
“I would echo the high level principles set out in the paper for building societies to be able to compete fairly, free from inappropriate burdens and maintain our distinctive approach and lower risk business model.”