By Dr Alexandros Skouralis, Assistant Professor, Real Estate & Finance, Henley Business School, University of Reading

The building societies sector is an important part of the UK financial system. Building societies hold over £600 billion in assets, provide a major share of UK mortgage lending, and play a central role in household savings. Yet, due to their non-listed status, they are often outside the scope of traditional market-based systemic-risk measures. This project addresses this gap by examining the sector’s systemic importance, financial resilience, and exposure to broader financial stress.

The report’s findings are summarised below:

• Building societies are financially more resilient than banks. They maintain stronger capital positions, with equity-to-asset ratios consistently above those of banks, and they operate with lower but more stable profitability. This reflects the sector’s lower-risk, retail-focused business model.
• The insolvency risk (Z-score) analysis confirms this resilience. Their Z-scores are consistently higher, indicating greater distance-to-default, and remained strong during both the Global Financial Crisis and the COVID-19 period. 
• Building societies make a positive contribution to system-wide stability. The Leave-One-Out Z-score analysis shows that excluding building societies from the financial system reduces aggregate solvency. In practical terms, this means that building societies act as a stabilising force within the UK financial system rather than as an amplifier of risk.
• The sector’s overall systemic risk footprint is relatively low. Indirect SRISK estimates show that building societies account for only a small share of total UK systemic risk. In 2024, the sector contributed around 4.6% of aggregate UK SRISK, and around 6% when the comparison is restricted to banks and building societies only.
• However, systemic risk within the sector is highly concentrated among the largest societies. The five largest building societies account for more than 90% of the sector’s estimated SRISK. This reflects their scale, their importance in the mortgage market, and their greater similarity to large banks. By contrast, smaller and medium-sized societies exhibit very limited systemic importance and provide the strongest stabilising contribution to the sector.
• Building societies are exposed to system-wide stress, but less than banks. The results show that building societies’ balance-sheet growth declines during periods of financial-system distress, but by materially less than that of banks. This suggests that building societies are not immune to systemic shocks, but they are less likely to amplify them.

The findings point to clear policy conclusions:

Building societies should be included in systemic-risk monitoring because of their growing scale and importance to mortgage lending and household savings. However, the evidence supports proportionate, risk-based regulation rather than a bank-centric approach for the whole sector.

Greater supervisory attention is appropriate for the largest societies, but smaller and medium-sized societies should not face unnecessary regulatory burdens.

Overall, the report shows that building societies are systemically relevant, but not systemically fragile. Their mutual model, conservative balance sheets and retail funding base make them an important source of resilience and diversity within the UK financial system.

Read the summary report

Read the full report