Building societies in rush to safe havens

Skipton Building Society had almost doubled its “cash in hand and balances with the Bank of England” to £1.5bn by the end of June, versus £782m six months earlier, while Yorkshire Building Society more than doubled its to £3.3bn by June 30 from £1.6bn at the end of 2011.

Lenders are required to hold a proportion of their assets in ‘liquid’ form – to ensure they can repay debts immediately in a crisis.

Skipton chief executive David Cutter said it has “switched from investing in other banks to the Bank of England”. “It’s in terms of being ultra-cautious in view of the uncertainty surrounding the eurozone and financial markets at the moment,” he said.

The Yorkshire said its liquid assets now consist “almost entirely of exposure to the Bank of England and UK Government”. It is not replacing some maturing assets such as euro bonds and gilts, plus cutting some bank lines.

Yorkshire’s corporate development director Andy Caton said: “We’re a lot more cautious about lending money to non-UK financial institutions. We’ve either reduced the size of the lines because of caution or credit rating or cut them completely.

“We (also) reduced some gilt investments and are preferring to hold it as cash at the moment.”

However, these holdings earn just 0.5 per cent with the BoE.