Societies welcome new powers
Saturday 25 February 1995
Building societies hailed the Government's long-awaited extension of their powers yesterday as a key weapon with which to take on the high- street banks, while the banks themselves dismissed the review as failing utterly to improve customer accountability.
The main features of the new regime, announced by the Financial Secretary to the Treasury, Anthony Nelson, are that societies will be allowed to own general insurance companies and banks, and will be able to raise up to 50 per cent of their funds from wholesale markets, instead of just 40 per cent today. All depositors are to be treated as shareholders with full voting rights. This proposal raised fears that Halifax would have to give three million current and card cash account holders the same rights as other depositors in its proposed merger with Leeds. They are currently excluded from the multi-billion pound deal.
A spokesman for Halifax dismissed this fear, saying that the merger and conversion to plc status would be completed by the time the changes in legislation required by the Treasury review had been implemented, in 1997.
The review to the Building Socities Act also proposes that societies will have to keep at least 75 per cent of their lending in residential property, with the possibility of a future review.
Societies will now be freed to pursue any other activities, subject to the above limits and to prudential control. This will allow societies to write insurance on buildings, contents and mortgage protection, and even buy a UK incorporated bank.
These new powers are complemented by sweeping new measures requiring societies to keep members better informed, to impress upon them that they are the real owners of the business, and that they play a key role in electing the directors. Only 3 per cent of society members vote on average in current board elections, Mr Nelson said, and the review should change this.
The measures will be implemented by secondary legislation, probably in this session of Parliament, and be incorporated in future primary legislation, Mr Nelson said. There will also be a voluntary code of practice, ideally in place by the autumn, covering many of the points on accountability.
According to the Building Societies Commissions, the 50 per cent funding limit should be in place by July, and the ability to do business lending could be implemented soon after.
This is despite the fact that most industry insiders doubt that any societies will want to get involved in the risky and highly competitive world of small business lending.
The measure to allow societies to own general insurance companies will take longer, and will depend on changes to insurance legislation.
Anthony Nelson said the bid framework for companies approaching societies was left unchanged.
He upheld the Government's determination to preserve an independent mutual building society sector, separate from the banking sector. He also rejected calls from the Treasury and Civil Service Select Committee to scrap the Building Societies Commission.
The MPs wanted all banks and societies to be regulated under one body - the Bank of England. Mr Nelson said: "If it ain't broke don't mend it. The BSC has done a very good job."
He said that the Government's whole approach to building society reform remained the same as at the start of the exercise: to avoid the 80-odd remaining societies being gobbled up by the banks.
Peter Birch, chief executive of Abbey National, which converted from building society to bank status, has been a leading critic of societies and the way they treat their members. He has urged the Government to balance their new, extended powers with greater accountability to customers.
Yesterday he welcomed the proposals on accountability, but warned they did not go nearly far enough.
Comment, page 16
Your Money, page 19
- 1 Howard Jacobson: Let’s see the 'criticism' of Israel for what it really is
- 2 Gingers face extinction due to climate change, scientists warn
Game of Thrones author George RR Martin says 'f*** you' to fans who fear he will die before finishing Westeros saga
Jennifer Lawrence face palms Emma Watson at Christian Dior show in Paris
Gingers face extinction due to climate change, scientists warn
Pamplona Running of the Bulls 2014: Briton critically injured in San Fermin festival
Elephant 'cries' while being rescued after 50 years of abuse in India
Sustained immigration has not harmed Britons' employment, say government advisers
British jihadist calls for 'flag of Islam' over Downing Street and Buckingham Palace
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£35000 - £40000 per annum + Benefits: Ashdown Group: HR Advisor - 6 Months Fix...
£37000 - £40000 per annum: Ashdown Group: IT Manager - Tolworth, Surrey - £40,...
£55000 - £65000 per annum + excellent package & bonus expectations: Real Staff...
£80000 - £90000 per annum + competitive: Real Staffing: A highly successful Co...