The Nationwide Building Society has protested that the £250m cost of its premium to the Financial Services Compensation Scheme (FSCS) unfairly penalises it for being a low-risk lender.
The country's biggest building society warned yesterday that it expected to take a charge for the full amount in its 2008-9 accounts, although the fee is for the next three years. The £250m figure includes £13m for the Derbyshire and Cheshire societies, which Nationwide rescued last year.
The high cost to Nationwide highlights the burden placed on building societies by the FSCS, which guarantees retail deposits up to £50,000. Last year, the scheme paid out a record £14bn to cover the sale of Bradford & Bingley's deposit business to Banco Santander of Spain. But Nationwide said: "We regard this cost, which is ultimately borne by our members, as an unfortunate consequence of the FSCS. The basis of allocation of the levies has a disproportionate and inequitable impact on low-risk, predominantly retail-funded institutions generally, and building societies in particular."
The FSCS charges lenders according to the size of their deposit base. This reflects the funds that are protected but does not take into account the fact that big deposit-takers are usually more stable businesses less likely to hit trouble.
Nationwide is lobbying regulators to change the way the scheme's charges are levied. About 160 MPs have signed an early-day motion calling for fairer treatment of building societies. Under questioning from MPs last month, Lord Turner, the chairman of the Financial Services Authority, promised that the regulator would look at the way the scheme affects building societies.
Mervyn King, the Bank of England governor, has called for up-front funding based on a bank's risk profile. The FSA published a consultation paper on the scheme in January which includes options for changing the way levies are split between deposit takers. The consultation period closes on 6 April but no imminent change is expected.
The FSA said that it was right that fees for the scheme should reflect the amount protected. It added that the FSCS's contribution to recent banking bailouts had been funded from loans instead of up-front funding, reducing the levy for 2008-9 from £1.84bn to £435m.
During the debt boom, many banks moved away from using retail savings to fund their loans by relying increasingly on raising cheap short-term debt in the money markets. Northern Rock, a former society, used this new funding source for about 75 per cent of its lending before the markets froze in 2007, almost causing the bank to collapse.
The mutual sector has been hit hard by the credit crunch as demand for mortgages has dried up. They have also faced pressure on the savings side of their businesses, first from more competition from banks and now from record low interest rates that squeeze their margins.Reuse content