Speech by Iain Cornish, Chairman, The Building Societies Association to the BSA Annual Lunch - 8 November 2007

Introduction

One of the functions of the BSA is to represent the views and interests of building societies to those who regulate us, write about us, legislate about us, compete with us and supply services to us.  This, our Annual Lunch, is where we seek to bring all of those parties together to discuss with us the issues of the day.  It is my great pleasure to welcome you all here, and my especial pleasure to welcome, and say thank you to, our sponsor – Legal and General.  A large number of building societies enjoy a close relationship with L&G, including my own society the Yorkshire.  Their commitment to the mutual sector over many years has been tremendous, and in our experience they are a role model for how partnerships between organisations can work.  As a major player in the money markets their support for the sector in recent times has also been very much appreciated.  I’d also like to welcome our guest speaker, Kitty Ussher, Economic Secretary to the Treasury.

And I would like to begin by thanking the government for what has been a very constructive attitude to the mutual sector.  Your predecessor, Minister, styled himself the Minister for Mutuals, and I know the BSA Secretariat have been encouraged to believe, following their meeting with you a few weeks ago, that the generally supportive government policy towards building societies and other parts of the mutual sector will continue.  I would particularly like to thank the Treasury, and politicians of all parties, for the work that they put into ensuring the passage through Parliament of the Building Societies (Funding) and Mutual Societies (Transfers) Act, which received the Royal Assent in late October.  This legislation was driven forward by Sir John Butterfill MP, a long-standing friend of the mutual sector and an expert in enacting Private Members’ Bills, and I am especially pleased that he is with us here today – Sir John, many thanks.

Putting aside for a moment the current turbulent market conditions, the sector has had a very good year.  There is growing evidence to support the view that building society service standards are higher than those of banks.  Research we have undertaken this year showed that building society savers and borrowers are significantly more satisfied with the services which they receive from building societies, than are customers of banks.

The recently published Moneyfacts report on “most consistent savings rates” shows that building societies lead the way in offering attractive interest rates over the long-term.  Building societies currently account for over 70% of all the savings products offering the best rates of interest over both the last 18 and the last 36 months. 

The Moneyfacts research shows that building societies top the mortgage tables as well.  70% of the top 250 mortgages available today across the whole market are offered by building societies.  The very largest lender in the market – which ten years ago changed its status from that of building society to bank – does not have a single product in the top 250.

But, let me re-assure you in these nervous times that none of this is achieved by compromising on financial safety, which is paramount in every society’s objectives.  In their research published in September KPMG noted that “good growth, falling provisions for bad debts and cost control have generally given building societies a strong financial performance in 2006, making them a star in the generally gloomy sector of UK retail banking.” 

Clearly it would be odd if I didn’t refer to current market conditions, stemming from the US sub-prime crisis, but exacerbated significantly in the UK by the Northern Rock debacle.

Northern Rock is not a building society, having given up that status in 1997.  However, it is interesting to note that the recovery plan of at least one of the bidders involves making that bank as much like a building society as possible.  We all know that that is not really possible within a plc, shareholding based, organisation, but it does show the appeal to outsiders of the building society model.

In times of stress, consumers know who to trust, and it is therefore no coincidence that the flow of savings into genuine building society accounts last month was a record, by far.

The whole building society model is more transparent, simpler, more prudent and more trusted and we simply do not have the same motivation as banks to take massive risk positions in pursuit of profits for shareholders.

All that said, it is imperative to us that the future of Northern Rock is sorted out as soon as possible.  The reputation of UK financial services, and the future progress of the mortgage market, will be heavily influenced by the outcome of current events.  The credibility of the tri-partite arrangements needs to be re-built – indeed from a regulatory, economic and consumer perspective it is hard to see a more pressing priority than these two issues.  Can I make a plea, however, that we do not get a regulatory over-reaction.  These are complex issues that need to be properly thought through.  The FSA, Bank of England and Treasury must not design new structures based on the idea that all deposit-takers are potential Northern Rocks.  The FSA has frequently used the words “risk-based” and “proportionate” and these must be the guidelines for the regulatory response, when it emerges.

Turning to our guest speaker.  Kitty Ussher, Kitty was made Economic Secretary to the Treasury following the change of Prime Minister earlier this year.  She was elected to the House of Commons as MP for Burnley in 2005, succeeding a great supporter, over many years, of the building society sector, Peter Pike.  The Minister is an economist by training and briefly worked as a political adviser to Patricia Hewitt at the Department for Trade and Industry.  Before becoming a Member of Parliament, she was the Chief Economist on the cross party Pro-European Campaign Group, Britain in Europe. 
As Economic Secretary to the Treasury, Kitty has, amongst other things, responsibility for wholesale and retail markets both in the UK and internationally, financial crime, financial services tax issues, the Financial Services Authority and savings policy, so I am guessing there haven’t been many dull moments over the last 10 weeks.

As far as this audience is concerned Kitty also has responsibility for building societies and mutual legislation.  Minister we are very grateful that you have found time in your busy schedule to speak to us, and we very much look forward to hearing what you have to say.