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Remutualise Rock, says BSA

The Building Societies Association is urging the Government to remutualise Northern Rock.

A report published today for the BSA argues a case for converting failed banks into mutual organisations. In light of the report, the BSA is calling on the Government to consider seriously returning Northern Rock bank to the mutual sector.

The report, by the Centre for Mutual and Employee-owned Business at the University of Oxford, says a financial system with diverse ownership and governance structures is better able to weather business cycles than one that is plc-dominated.

The report says that mutuals tend to adopt a lower risk profile because their objective is not profit extraction for shareholders. It also says a remutualised Northern Rock would help the Government to meet its policy objective of supporting competition and diversity in the public sector.

Treasury Select Committee chairman John McFall MP says: “This is a timely contribution to the debate on the future of our financial services sector. If ever there was a time for an expanded mutual sector, it’s now. We desperately need to restore faith in financial services in this country.”

BSA director general Adrian Coles says: “The Government has said that financial mutuals can provide a robust alternative to financial services companies in the future – what better way to demonstrate this than to seriously consider returning Northern Rock to the mutual sector?

“Given that remutualisation would strengthen competition and create a more diversified financial sector, it could be expected to generate an advantage to the taxpayer over the long run in excess of the immediate benefit of any capital proceeds in the short run.”

University of Oxford Professor of Innovation and Knowledge Exchange Jonathan Michie says: “We must not allow the UK’s financial services sector to return to the ‘business as usual’ model that has proved so costly to the economy and public finances. It is vital that the banks face strong competition from mutual building societies – remutualising Northern Rock would thus deliver to consumers and taxpayers.”

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