Yesterday was a day that Britain's building society industry will want to forget. Santander announced that the once proud British names of Abbey, Alliance & Leicester and Bradford & Bingley will disappear from the high street as the Spanish bank re-brands its acquisitions. Meanwhile, the largest remaining British building society, Nationwide, revealed a 67 per cent fall in profits.

Of course, the Santander re-branding is essentially a symbolic move; these societies had already lost their operational independence. Indeed, they had already de-mutualised when they were taken over. Meanwhile, Nationwide was at pains to blame the profit slide on the higher cost of its contributions to the Financial Services Compensation Scheme after its takeover of three weakened rivals.

There is much truth in this. But it cannot disguise the more general weakness in what remains of the British building society sector. Building societies mostly avoided the exotic structured finance products that inflicted such damage on our banking sector. To that extent the conservative business model and ownership structure of most societies has been vindicated. But they did over extend themselves in residential property loans. And that is the reason they are suffering now, as house prices continue to fall and unemployment pushes up repossessions. Some made foolish investments in commercial property too. Several societies are expected to make a loss this year, which will eat into their capital reserves. Last month the credit rating agency Moody's downgraded the rating of nine leading societies. Nationwide's Chief Executive Officer said yesterday that he expects more mergers in the sector in the coming months. There might even need to be rescue packages from the Treasury.

This all confirms that, while it is easy for lenders to make money in a boom, it is when the bust comes that we really see the quality of their investments. On the whole, they might have performed better than their incompetent peers in the banks, but a disheartening number of our building society managers have failed the test of the downturn too.