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Capital proposals must cater for mutuals, says BSA Chairman
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Contact: Rachel Le Brocq Date: 12 Nov 2009 |
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Speaking at the Building Societies Association (BSA) Annual Lunch today, Graham Beale, Chairman of the BSA, said a fundamental concern of the sector is the proposals relating to building society capital. He also noted that societies are ‘socially useful’ with a profound benefit to local communities up and down the country.
He said: “The Tripartite has made it very clear that they want to see a greater quantity and a better quality of capital across the whole of the financial services sector. And this is where the building society sector has a major issue. We have the strongest and purest levels of capital in the industry but our ability to manufacture higher levels of capital is limited without compromising our mutual status.”
Mr Beale questioned the FSA’s view that PIBS - a form of building society capital - should be regarded as Tier 1 capital, rather than core Tier 1 - despite legal and practical arguments to the contrary put forward by the BSA. “I would encourage the FSA in particular not to back us into a corner by an over rigid or super equivalent interpretation of the capital requirements directive. Such a policy is, in execution if not intention, anti mutual and we are determined to challenge it.”
Against a backdrop of unique and highly challenging economic and market conditions, Mr Beale noted that demand for retail deposits from institutions has never been greater as institutions refinance their balance sheet in the retail rather than the wholesale market. He said “the net consequence is that the margin between savings rates and mortgage rates has been eroded… but the demand for retail deposits is so intense that rates have been pushed up in some cases to uneconomic levels. And this is often by institutions that carry real or implied unlimited guarantees because of their full or part state ownership.”
On the subject of emerging regulation, Mr Beale warned that the effect of regulatory change is becoming increasingly more difficult to interpret. Emerging regulation will come at a cost, which will ultimately have to be borne by the consumer in terms of more expensive products, he said. And there is a very real danger that the law of unintended consequences will prevail.
In his concluding remarks, the BSA Chairman pointed to the importance of the building society sector. He said “the traditional values of building societies revolve around putting the customer first. This ethos underpins everything that a building society does and provides much needed diversity to the financial services landscape, a point many policy makers appear to be overlooking.”
He went on to say “building societies are of profound benefit to local communities throughout the UK and society generally… so building societies are far from being socially useless; in fact they are the exact opposite which is why it is so important that the endorsement in the White Paper of a healthy and vibrant building society sector must be preserved and built upon.”
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Notes to Editor:
1. A copy of Graham Beale’s BSA Annual Lunch speech can be viewed here
2. The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 52 UK building societies. Building societies have total assets of over £370 billion and, together with their subsidiaries, hold residential mortgages of over £245 billion, more than 20% of the total outstanding in the UK. Societies hold nearly £240 billion of retail deposits, accounting for more than 20% of all such deposits in the UK. Building societies also account for about 36% of all cash ISA balances. Building societies employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.
3. Photographs of Graham Beale are available from the BSA press office, or from the Association’s website at www.bsa.org.uk or Headlinemoney www.headlinemoney.co.uk
Contact - Rachel Le Brocq - Tel: 020 7520 5905
