FSCS extension for merged societies welcome

The FSA’s announcement that customers of merged building societies will retain their FSCS cover until 30 December 2010, is welcome. This also applies to customers of a building society which merges with a subsidiary of another mutual society and for customers whose deposits are transferred from a failed firm to another deposit taker where they already have an account.

The FSA have also confirmed that they will undertake a review of the FSCS funding model and will consult on this in 2010/11. The BSA and individual societies have raised concerns with the FSA over the current structure in that FSCS levies are unfair to less risky institutions. Over 170 MPs supported the sector’s view on the issue in a parliamentary Early Day Motion. Whilst the FSA’s review is welcome, the timescales set out are disappointing.

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Reforming financial markets

The Treasury's long-awaited financial services white paper was published in early July. Reforming financial markets sets out proposals to strengthen the financial system, and includes a consultation on building society shared services and access to capital and the establishment of a new expert group on building societies.

The Government says it wants to promote competition and choice by strengthening the role of mutuals. It notes that whilst the mutual model has not been immune to the pressures of the downturn, “the traditional mutual model has, on the whole, stood up well. The Government believes that financial mutuals can provide a robust alternative to financial services companies in the future. In order to have this strength for the future, it is important that the mutual sector has good corporate governance; a modern legislative and regulatory framework; and access to capital and funding through modern markets.”

Proposals for reform to the corporate governance of mutuals and a report on whether any of the continental models of shared services may help achieve economies of scale in the UK building society sector will be presented at the pre-Budget report in the Autumn.

The Association looks forward to working with the Government on these issues and hopes to play an active role in the building society expert group.

Building societies increase savings consistency dominance

Moneyfacts’ most recent consistency survey shows societies increased further their dominance in the best value savings market. Two years ago, when the surveys started, building societies came out on top, taking 72% of the top places – now societies account for 83% of the top places.

The category for most consistent no-notice accounts over both 18 and 36 months is entirely made up of building societies. Only one high street bank appears in any of the consistency charts.

Louis Kaszczak, Head of Moneyfacts.co.uk commented:

“Many savers lead increasingly busy lives and they don’t have the time or inclination to continually chase best buy rates.

“Building societies continue to increase their dominance of the savings market, with mutuals continuing to play fair with their members, offering the most consistent rates of return.

Building society lending shows signs of stabilising

Gross mortgage lending by building societies was just under £2 billion in June 2009, the highest level seen this year, and up 30% on May.

Despite this, lending remains at historically low levels, and is 40% lower than in June 2008. Mortgage approvals show signs of stabilising as they reached a year high of £1.8 billion, but are more than 30% down on this time last year.