Building Society Background

6.   All UK building societies are covered by the FSCS.  Building societies are mutual organisations, where each member is both a shareholder (or borrower) and customer.  Under the FSCS, all building society shares are treated as deposits (except Permanent Interest Bearing Shares – PIBS).  No building society has ever called on the FSCS or on its predecessor - building society-specific - scheme.

7.   By section 90(2) of the Building Societies Act 1986 Act, subject to modifications set out in Schedule 15 to the 1986 Act, the main legislation pertaining to the winding up of a building society is the companies winding up legislation ie the Insolvency Act 1986 and Rules under it.  Like companies, building societies may be wound up either voluntarily by special resolution, or compulsorily on various statutory grounds.  Further provisions will be added by the Building Societies (Financial Assistance) Order 2008, currently before Parliament.

8.   Building societies are subject to nature limits, including one on wholeseale funding 1. A building society is permitted to raise a maximum 50% of its funding from the wholesale markets, but the average for the sector is around 30%.

9.   Capital is held in a building society to cover the various risks that are taken by a business involved in lending – the credit risk that the borrower will not repay, the interest rate risk inherent in the balance sheet, operational risks etc.  The building society sector is extremely well capitalised, which has helped ensure that no ordinary investor in a building society has lost any of their savings since at least 1945, and - so far as we are aware - for a long time before that.