David Prosser: The case of the vanishing mutuals

Outlook Another day, another building society bites the bullet: add Chesham, Britain's oldest surviving society, to the list of victims of the credit crunch – it is to be swallowed by Skipton, its much larger colleague.

While both sides deny it, this is a rescue deal, though Chesham's only mistake has been to be a small player in a world in which being small prevents you from competing effectively in the savings and mortgage markets. The society can't match the savings rates paid by larger providers, so it can't attract depositors to fund new mortgage lending. Existing mortgages, mostly linked to base rates, are no longer generating sufficient earnings, and Chesham does not have recourse to the wholesale money markets for the funding of new loans.

This squeeze is driving Britain's smallest building societies out of business. Chesham is not the first to go, and it won't be the last. Their economic woes are compounded by the mounting cost of regulation and higher capital requirements, imposed on all financial institutions irrespective of their role in the crisis we have been through.

Larger building societies, meanwhile, carry on. Leeds, Britain's fifth biggest society, this week posted record profits, having used its scale to drive down costs.

Should we mourn the passing of the tiny societies? Well, many of their members do, and there is something depressing about the disappearance of mutuals that have served their communities for 150 years or more.

Large societies serve members too, of course. But Chesham members will note that Skipton has just ripped up a pledge to thousands of mortgage borrowers never to charge them an interest rate more three percentage points higher than the base rate.