Events
Speech
Chairman's Address to the BSA Annual Lunch 2011
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Contact: Katie Wise Date: 10 Nov 2011 |
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Speech by Peter Griffiths, Chairman of the BSA
The FT recently reported that one of the many protestors’ banners at St Paul’s simply reads “Capitalism should be replaced by something nicer” and having reflected on that I contemplated setting up Adrian Coles in a BSA tent alongside, with a banner adding “Mutuals might just be the answer”.
We can argue that the protestors’ messages may be incoherent but they do seem to reflect the mood of the nation in as much as things need to change.
Without a doubt we are facing a wider social disconnect, trust is in short supply, not only in bankers but more widely in business, politics and the media. The economic recovery has slowed and society is asking whether “more of the same” is good enough as a response to the economic crisis and its ramifications.
Many commentators concentrate on the greed and arrogance of individual high-profile bankers. Entertaining though that can be it misses a more fundamental point.
For a profound critique of modern capitalist banking, you only have to read the recent speech¹ by the Bank of England’s Andrew Haldane.
Based on the inherent defects of the equity shareholder model as applied to banking, he concludes that private gain by the few, set against potential downside risks to the many, did not begin in the run-up to the recent crisis but is a phenomenon that had been getting worse for much of the last century.
As mutuals and co-operatives we instinctively knew this, though we had not articulated or demonstrated it with the clarity of Haldane’s paper. We knew there was a better way.
Next year, 2012, is the UN’s International Year of Co-operatives, which reflects on alternative business models, now more fitting to the mood of the nation. Across the world, mutuals and co-operatives are actively seeking to build a better future and are trying to replace capitalism with something nicer.
Poet and humorist Thomas Hood famously wrote "I remember I remember the house where I was born, the little window where the sun came streaming in at dawn" and for me that is an evocative view of what a home is about.
It's about safety, security and a sense of well being and Government must lead in creating a climate for the provision of homes for people as places to live, regardless of tenure.
If we ask ourselves how well is the housing agenda being managed then a bit like my old school reports we would simply say "could do better".
Our sector stands ready and is demonstrably playing its part.
At the micro-level shared ownership and shared equity are two potential solutions to address the deposit challenge facing buyers today. The mutual sector is working hard in these areas, amongst many others.
At the macro-level people are developing new models for delivering new market and intermediate housing for rent or sale.
We have not yet seen an investment model that will draw in the billions of pounds from the major investment institutions needed to fulfil the nations housing requirements but a new financial framework is needed and needed now to fill this gap.
I would like to recall something our distinguished guest and main speaker Mark Hoban said, at a mutual sector event in June last year. Quoting William Wordsworth -
"Life is divided into three terms, that which was, that which is and that which will be - let us learn from the past, to profit by the present, to live better in the future".
As Chairman of the BSA I felt “that which was”, was a sector that weathered the financial crisis well but maybe had a legacy of feeling it was special and deserving of special treatment, but perhaps without knowing why.
We have a different business model to the banks and many since the dark days of demutualisation and carpet-bagging have come round to agree with our view, that the mutual way is demonstrably the better way.
If I could make a plea it is not for special treatment, but for a proportionate regulatory response to “that which was” and indeed “that which will be”.
One size fits all regulation which sees simple savings and loans businesses treated the same way as systemically complex and inherently riskier firms is both costly and counter productive.
Gold plating is a great British trait as is common sense and our plea is for the latter.
We have to deliver on our prudential and conduct responsibilities and it is fair to say that the PRA/FCA split should provide a better balance.
We do know however, that in this age of austerity “two for the price of one” offers are common on our high streets and in these times of challenged profitability please let’s seek to avoid “two for the price of two”.
In terms of “that which is” we all understand the harsh realities of the marketplace.
That said 2010 was a good year for most BSA member organisations, with many impressive full-year results - and other positive signs. Gross lending and savings improved, confidence was restored and a level of stability returned to the sector.
But make no mistake, the “lower for longer” interest rate environment makes sustained recovery a challenge for many.
I pause for a moment to mention the European context. While our members remain essentially domestic UK players, we cannot be totally insulated from the turmoil in the Eurozone. Overall our Eurozone-related exposures are pretty minimal.
As we critically look at “that which will be” I too am keen to learn from the wise words of Wordsworth which ended “to live better in the future”.
Given the pressures we face, there is a temptation to hunker down, retreat or hibernate until the world looks nicer in some future spring. But, for my part, shrinking your way to success can only ever be a short term strategy and does little to support the diversity agenda and sector aspiration.
In that same speech the Minister also said “that if the future of financial services is really to flourish, it must be backed up by the strength and sustainability of financial mutuals”.
We would all applaud that and seek to turn the rhetoric into reality but that will mean that a few obstacles will need to be overcome and overcome quickly.
It is clear that the mutual sector is at a critical juncture. On the one hand the appetite of the consumer for the sort of value proposition and level of localness and service we can provide has never been stronger.
Building societies moreover represent a pre-existing template for many of the reforms to the structure of UK retail banking as set out in the Vickers report.
The BSA broadly welcomed the ICB’s recommendations and we look forward to the Government’s formal response.
If the retail ring fence is to be implemented, we also look to you Minister and to your officials to ensure that building societies end up with one set of rules, not two similar, overlapping sets. It is time for a new look at the Building Societies Act.
On the other hand let’s look at what else we need to optimise “that which will be“? One important ingredient is capital.
Our sector has pretty strong capital ratios, and we carefully maintain the reserves built up over the years from annual surpluses. We don’t waste them on distribution to shareholders, or inflated pay to executives.
We know that capital is precious and takes time to grow organically. From time to time it is right to augment organic capital with core tier 1 instruments that respect mutual principles.
We welcome the clear recognition, and “parity of esteem”, accorded to mutual and cooperative capital instruments in the draft of the European Capital Requirements Regulation.
We appreciate the continuing work of Treasury officials towards getting the right final outcomes here, including for banking subsidiaries of co-operatives.
So, how would new capital help?
First it could help the sector deliver more lending into the market at the same time as meeting the new capital requirements and replacing the stock of old non-compliant capital instruments, such as old PIBS or subordinated debt.
This can power a range of innovative funding solutions to support not only the homeowner but the intermediate rental market. Getting construction back to work is a win-win for all, particularly for the social justice and economic stimulus agendas.
Second, a new capital instrument could help mutuals seize opportunities without waiting to organically accumulate all the necessary capital first.
Without a doubt this is a fantastic time to build our businesses but sadly when the right opportunity presents itself, you can’t say “come back in three years when I’ve amassed another few million pounds of reserves”.
In particular, new capital could have helped to return Northern Rock to mutual ownership - surely in the long term interest of the taxpayer, if set against a discounted sale back to the PLC sector.
The Minister is on the record supporting the case to create a powerful new mutual to extend customer choice and increase competition and that support is much welcomed. So we re-emphasise the mutual alternative. The sector stands ready to look again at the feasibility of re-mutualisation proposals.
So moving to my conclusion; we retain a special place in the hearts of our members, 25 million of them.
Let me say that again, 25 million of them.
We all have a desire to do more not less going forward, growing not shrinking and helping to play our part in putting the nation back on its feet.
Diversity in financial services is more than a nice to have, it helps to underpin financial stability and reduce systemic risk as well as improving choice and outcomes for consumers.
This is a moment in time opportunity for us and we should not let it slip.
As we rightly focus on our future we should not forget our past. We have a history to be proud of and a set of values with real provenance – and contemporary resonance.
My own society 150 years ago was built on the foundations of its core values of Industry, Economy, Thrift, Perseverance, Providence and Temperance and many of these retain their relevance today.
When I took over as Chairman in May I spoke about the potential renaissance that may lie ahead for mutuals adding that this was a pivotal time in their evolution.
Despite prevailing economic conditions I still believe that to be true. The platform is there for mutuals to flourish.
For too long though, mutuals have been an afterthought in UK policy making and this has resulted in opportunities being missed.
There is an opportunity right now to change all that and at the same time fulfil the Coalition Government pledge to “promote mutuals and create a more competitive banking industry”.
Give us the tools, and we will do the job.
Those tools are proportionate regulation, access to capital and support from the major investment institutions to help us with innovative financing schemes to help the housing market.
I agree with the banner at St Paul’s - It is time replace capitalism with something nicer. It is also time to put building back into Building Society.
Financing the building of new homes for those who need them, building bridges with key stakeholders and building a brighter future for the communities within which we operate.
Thank you.
