BSA gives evidence to the Treasury Committee on financial stability

Appearing in front of MPs at the Treasury Committee hearing on financial stability and transparency, Adrian Coles, Director-General of the BSA, said one of the key weaknesses in the handling of the Northern Rock situation back in September, was the communication from the tripartite to depositors of the stricken bank.  It was not clear who was in charge of communicating with the depositors and this is something that needs to be resolved in the memoranda of understanding between the three parties.   Moreover some of the terminology used by the authorities was not very understandable to the ordinary depositor.

Mr Coles highlighted the differences in how building societies are funded compared to banks.  Under the Building Societies Act 1986, building societies can raise only 50% of their funds from the wholesale markets – on average societies raise only 30% by this means, with the remaining 70% coming from retail depositors.  Northern Rock bank may not have met with such a ‘sticky end’, he said, if it had retained the building society status it gave up in 1997.

Colin Breed MP, questioned whether it was time for a return to the traditional forms of banking.  Mr Coles noted that societies have retained the traditional form of doing business that has served them so well for over 100 years and will continue to do so.

A copy of the BSA’s written evidence to the Committee’s Inquiry can be viewed on the BSA website at the link below -

The BSA gave oral evidence to the Treasury Select Committee on 18 December.