Introduction

1.   The Building Societies Association (BSA) represents all 59 building societies in the United Kingdom.  Building societies have total assets of just under £350 billion and, together with their subsidiaries, hold residential mortgages of £245 billion, more than 20% of the total outstanding in the UK.  Societies hold about £215 billion of retail deposits, accounting for more than 20% of all such deposits in the UK.  Building societies also account for over 38% of all cash ISA balances. Building societies employ over 50,000 full and part-time staff and operate through more than 2,100 branches.

2.   This paper provides the BSA's response to the joint consultation published by the Bank of England, HM Treasury, and the Financial Services Authority (the Authorities), Financial stability and depositor protection: strengthening the framework (the CP), containing proposals for strengthening the current framework for financial stability and depositor protection.  BSA representatives have met Treasury officials on several occasions to discuss the CP and the current situation.

3.   In the wake of the Northern Rock crisis, the CP makes proposals, with international co-operation as appropriate, in respect of the following –

(i)   the need for change

(ii)   strengthening stability and resilience of the financial system

(iii)  reducing the likelihood of banks facing difficulties

(iv)   reducing the impact if a bank got into difficulties

(iv)   providing effective compensation arrangements, and

(vi)   strengthening the Bank of England, and ensuring effective action.

4.   Regarding the Financial Services Compensation Scheme (FSCS), the CP does not propose a higher limit for deposits and notes that the FSA will be consulting on this matter, but we include some initial comments on the subject. 

5.   The CP refers to "banks" for short (except when specifically referring to building societies), but it applies to all types of credit institution, including building societies.  In this response, we mirror the CP's use of the term 'bank', unless the question applies to building societies only or there are building society-specific aspects.  The BSA notes the contents of Statement by the Chancellor of the Exchequer to the House of Commons on 21 April 2008, which is of course relevant to the CP, but the BSA does not comment further in this response on the Chancellor's Statement.