Policy

Mutuality

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Building societies and mutuality

All building societies are mutual institutions. Therefore people who have a savings account, or mortgage, are members and have certain rights to vote and receive information, as well as to attend and speak at meetings. Each member has one vote, regardless of how much money they have invested or borrowed or how many accounts they may have. This means building societies are solely focussed on delivering the best services and products to their members. This is in contrast to banks, who have a split loyalty between making a profit to deliver dividends to shareholders and delivering value for their customers.  The total management expenses of converted institutions are usually about 35% more than they otherwise would be once dividend payments to shareholders are taken into account.

During the 1990s a number of building societies demutualised to become banks. The All Party Parliamentary Group for Building Societies and Financial Mutuals has been critical of that process, publishing a report on the subject in March 2006.  The report and the BSA's evidence, can be found below.

BSA written evidence to the APPG enquiry into the True Cost of Demutualisation
BSA oral evidence to the APPG enquiry into the True Cost of Demutualisation
Windfalls or Shortfalls? The True Cost of Demutualisation
Demutualised former building societies

Earlier in March 2004, it was announced that the Government was going to conduct an independent review, chaired by Paul Myners to look into the corporate governance of mutual life offices, but also examining other mutuals.

In July 2004, following the publication of the Myners consultation document, the APPG took a decision to carry out a short inquiry into the extent to which mutual businesses contribute to the economy and society.

Please find below links to the BSA's evidence to the Myners Review, the APPG Parliamentary hearing, and the full APPG report.

APPG for Building Societies and Financial Mutuals Short Enquiry
BSA oral evidence to the APPG Parliamentary Hearing - 26 October 2004
BSA written evidence to the Myners Review
Appendix to BSA written evidence to Myners Review

Key benefits of building societies 

The key benefits of building societies' mutual status are as follows

• They do not pay dividends to shareholders, and accordingly are able to operate on narrower margins than plc banks.  This means that, overall, building societies offer lower mortgage rates and higher savings rates than their competitors.
• They are more likely to maintain their branch networks than banks, as they can take into account non-financial factors when assessing whether to open or close branches.  Bank branch numbers have been reduced much more rapidly than building societies' in recent years.
• They can take into account much longer term issues when determining corporate strategy than institutions constantly under pressure to deliver rising dividends and a rising share price.
• They can influence, favourably, the pricing policy of their competitors.  For example, pressure from building societies has prevented banks charging for access to cash machines
• The UK has a much stronger financial services environment through the diversity which building societies offer.  They are based all over the UK, rather than in the City of London, which is the home of most financial institutions, and this gives them a different perspective.
• They are much closer to consumer needs and aspirations because of their ownership structure.  Building society staff know that when they serve a customer they are serving one of the owners of the business.  This ensures a completely different culture in building societies compared to institutions owned by shareholders.  This is reflected in the higher level of service for building society customers compared to bank customers.