The Building Societies Associa-tion has slammed FSA chairman Lord Turner for declaring that societies should “stick to their knitting” and not venture into services which are not considered core.
Turner told MPs in a Treasury select committee meeting last week that societies should steer clear of riskier products.
He said: “There is an unfinished part of our regulatory agenda as to whether we should reverse some of the liberalisation of the building society rules which took place in the 1980s and 1990s.
“In relation to societies, which are organisations which can only have a skill set across a limited range of activities, they should stick to their knitting.”
FSA chief executive Hector Sants told the committee he would welcome reform of building societies.
But BSA head of mortgage policy Paul Broadhead says it is banks that have had the biggest problems and he believes the biggest mistake came from letting mutuals become banks.
He says: “He should not be saying that. If you look at the issues we have had over the past few years, they have not been down to societies in any shape or form. We have had some difficulties but if you compare the difficulties that we have had in our sector with the difficulties they have experienced in the banking sector, they are not even comparable.
“We had a big bunch of societies that demut-ualised, wanted to grow very quickly and expand into other areas and every single one of them has gone bust or gone into public ownership. So if Turner wants to talk about mistakes that have been made, there were far more there than in our sector.”
Broadhead adds that societies are doing what the regulator is asking of them and, in general, the sector is performing well.
He says: “I do not really recognise the issues he is trying to fix here. We are still in a position where, predominantly, the sector is funded by retail deposits, which is something the FSA wants us to stick with. We have got guidance now, especially the building societies specialist sourcebook, which ensures risk management capability is in place in the sector, and if you look at the performance of the sector in the past few years, I think it is pretty good.”
Skipton Group chief executive David Cutter points to Skipton as an example of a society that has moved into areas other than core products and not suffered.
He says: “I am perplexed that Lord Turner thinks the biggest regulatory mistake was to allow mutuals to diversify away from prime residential lending. What about allowing former societies to convert to banks that subsequently failed? Skipton is proof that such a model can be successful, robust, sustainable and run in the interests of members.”
Leeds Building Society sales and marketing director Kim Rebecchi says: “We have a successful, business model that has delivered profits through-out the credit crunch and enabled it to maintain strong credit ratings from both Moody’s and Fitch. Societies have performed very resiliently, particularly compared with banks.”