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Mutual Disrespect

One of the most striking aspects of this year’s Building Societies Association Conference was the amount of time dedicated to the discussions of inequality and unfairness.

Societies big and small berated just about every Government proposal and scheme that has been released over the last eight months.

At the Conference in Harrogate, the FSA hit out at some of the risky and irregular lending and funding practices of societies, something that has been reflected in the recent downgrades of several mutuals. While this regulatory telling off may have been well deserved in some cases, the building society fraternity feel like the Government isn’t giving them much room for improvement.

The main gripe of the two days was FSCS levies. The BSA says the sector has had to stump up nearly £1bn as a result of the failures of the Icelandic Banks and Bradford & Bingley, with Nationwide shouldering a quarter of that. While most agreed that there are few alternatives to the levies now, the fact that the £1bn has been lost as a result of a reckless demutualised bank is a particularly bitter pill to swallow.

On top of that, currently the FSA rules for merged institutions mean that, for example, the Nationwide group can only offer £50,000 guarantees for each of its four subsidiaries (Nationwide, Derbyshire, Cheshire and Dunfermline), but if it were a bank it could offer a combined £200,000 guarantees to its savers.

Then there is the Credit Guarantee Scheme. Heralded as a sensible saviour to the funding crisis, the rules of the scheme mean building societies have to pay 65 per cent more than Lloyds Banking Group for any State backing.

If all that wasn’t enough, building societies are seeing massive drops in retail savings as both National Savings and Investments and Northern Rock take more of the UK retail savings share. British savers were quick to realise, as was the Government, that both State-owned institutions offer 100 per cent cover on deposits, rather than just £50,000.

BSA director general Adrian Coles told me he hoped the political power of the sector will help it fight these battles.

This is certainly one of the sector’s strengths; many mutual members are reliable, local, middle England votes for the parties, so keeping their savings rates high and their local building society branches in business should be a paramount concern to them.

The worry is the powers that be may have gone too far by over-looking the mutuals. We all want a vibrant, competitive financial sector but by shackling the hands of building societies, the Government risks the future health of the sector.

What do you think? Has the building society sector been treated unfairly? Has the Government made a mistake in not protecting these institutions enough? Or are mutuals reaping what they sowed through risky lending and trying to grab a slice of the banks’ wholesale cake?


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 22nd May 2009 at 4:19 pm

    Mutual Disrespect
    The root cause of almost all of this is lack of regulation on the part of the FSA, encouraged by the Government. And, of course, neither of those institutions ever actually pay for any of their failures. The FSA has the gall to demand even more of our money to enable it to “do better in the future” whilst MP’s are busy lining their own pockets with fraudulent expense claims. It’s always other peoples’ money, so what the hell?

  2. Mutual disrespect
    Suggesting the mutuals have “reaped what they sowed through risky lending” completely misses the point. Far from reaping what they sowed, the FSCS has not been called on to compensate any building society customers the way they have had to do with Bradford & Bingley, the Icelandic banks etc. Regulation around societies mean they’re denied a level playing field with the banks, but are more than good enough when it comes to stumping up the cash to bail the PLCs out.

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