From 1986 to 2000, the UK saw the demutualisation of 10 of its building societies. Today, every one of these new banks has been taken over by larger banks or have been nationalised. After the apparent failure of the demutualisation experiment, now could be the time to reconsider the role of Mutuals in the UK’s financial sector.
A new consideration of Mutuals has become especially pertinent in light of the recent global economic conditions, which were caused in part by the overly risky behaviour of commercial banks. Indeed, the aggressive lending policy pursued by a demutualised Northern Rock directly contributed its exposure to the sub-prime crisis and downfall.
There were reasons, of course, for the demutualisations in the first place – namely the problems building societies had with competing with the larger commercial banks that were able to access almost unlimited finance.
The need to compete in a marketplace increasingly dominated by commercial banks has seen a rapid reduction in the numbers of building societies in the UK. In 1900, there were 1,700 building societies; by 1986, when the Building Societies Act was passed, this had become 110. Today, the Building Societies Association (BSA) only numbers 52 members.
However, now that swathes of the UK’s banking sector are under state-ownership, we have a unique opportunity to re-order that sector along more responsible lines. Mutuals could offer the solution.
There needs to be a serious debate about the future of the UK’s banking sector, and it must not be one biased towards the Treasury’s desire to recoup quick cash from state-owned banks.
Long-term responsibility must be given due consideration.
A new consideration of Mutuals has become especially pertinent in light of the recent global economic conditions, which were caused in part by the overly risky behaviour of commercial banks. Indeed, the aggressive lending policy pursued by a demutualised Northern Rock directly contributed its exposure to the sub-prime crisis and downfall.
There were reasons, of course, for the demutualisations in the first place – namely the problems building societies had with competing with the larger commercial banks that were able to access almost unlimited finance.
The need to compete in a marketplace increasingly dominated by commercial banks has seen a rapid reduction in the numbers of building societies in the UK. In 1900, there were 1,700 building societies; by 1986, when the Building Societies Act was passed, this had become 110. Today, the Building Societies Association (BSA) only numbers 52 members.
However, now that swathes of the UK’s banking sector are under state-ownership, we have a unique opportunity to re-order that sector along more responsible lines. Mutuals could offer the solution.
There needs to be a serious debate about the future of the UK’s banking sector, and it must not be one biased towards the Treasury’s desire to recoup quick cash from state-owned banks.
Long-term responsibility must be given due consideration.
I gotta hand it to whoever wrote this, you've really kept me updated! Now, let's just hope that I can come across another blog just as interesting :)
Posted by: Term Papers | 12 February 2010 at 09:55