Bernard Ginns: Men of the mutual movement take on the Establishment

I KNOW the lot of building societies isn't the most fashionable cause in the financial world, but policymakers need to be reminded that this is a sector which has so far managed to take care of its own problems without significant recourse to the public purse.

Yorkshire is the heartland of the mutual movement and so their concerns are our concerns. I have written a lot about building societies since the credit crunch and expect I shall continue to do so as their business model remains under pressure, not least from the Establishment which insists on maintaining a historically low base rate.

Last week an interesting letter arrived in my inbox. It was from Iain Cornish, chief executive of Yorkshire Building Society, David Cutter, chief executive of Skipton Building Society, and David Pickersgill, deputy chief executive of Leeds Building Society. Three custodians of the movement.

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It was sent to Rosie Winterton following a meeting with the regional minister for Yorkshire and Humber at the beginning of the month. Financial Leeds, the public-funded promotional group, arranged the meeting.

The executives used the meet-ing and subsequent correspon-dence to repeat their concerns about the unfair treatment of the building society sector, compared to the banking sector.

The letter attacks the Treasury and Financial Services Authority for failing to sanction a capital instrument that building societies can access.

It criticises the slow pace of progress in reviewing the funding model for the Financial Services Compensation Scheme, the burden of which currently falls disproportionately on building societies. Related to this is the question of who funds any shortfall in recoveries on Bradford & Bingley assets, which mutuals fear could have major consequences for the sector.

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Building societies still face competition from institutions with explicit or implicit state guarantees, making it easier for them to attract retail deposits – the lifeblood of mutuals. Crucially, they say this is having a significant impact on the ability of societies to fund new lending.

"We believe that all of these can be addressed without recourse to the public purse," said the letter. "Through our trade association, the Building Societies Association (BSA), we have been in discussion on all these issues with Lord Myners.

"You asked us in particular to quantify the benefits of securing progress on the approval of a new capital instrument. In practice it is very hard to quantify this precisely, but the BSA estimates that external capital instruments support around 30 per cent of the sector's total mortgage lending which equates to around 60bn.

"If a new capital instrument is not available then existing external capital will roll off over time and may not be replaced, with the likelihood that the sector will have to reduce its net lending – which is what happened in 2009 – or, in an extreme case, force certain societies to become banks, following the examples of Northern Rock, Halifax, Bradford and Bingley etc.

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"If an instrument exists whereby societies can raise fresh, private sector capital the sector would be better able to return to growth, supply credit, on a prudent basis, to the wider economy, and provide a strong source of competition to an increasingly monopolistic banking sector." The letter cites statistics which show 25 million people have accounts with societies; the sector has much lower arrears rates than the wider industry average. In other words, building societies are more prudent and sympathetic to borrowers in trouble.

"The building society sector makes an important contribution to the region's economy and the potential exists for this contribution to grow. We welcome the expressions of support for the mutual sector which the Government has made and would welcome your support in our continuing dialogue with the Treasury and the FSA."

After the letter arrived, Ms Winterton's press officer called me to offer a comment. She said: "The minister has raised the issue with Her Majesty's Treasury. It's with HM Treasury at the moment." I asked the press officer if this meant she supported their cause. She would not comment further.

Later, a statement arrived by email on behalf of the minister. In it, Rosie Winterton said: "I will continue to work closely with the Financial Services Task Force. This was set up last year by Yorkshire Forward to work on a strategy to maintain the Leeds City Region as a UK centre of excellence for financial and professional services.

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"The building societies are a vital part of our expertise and currently employ over 3,600 people in the region. The region was a key player in developing the building society movement and I expect it to maintain this leading role in the future."

Does that amount to support? See page seven for more news on the search for a new capital instrument.

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