Policies making it harder to lend, say mutuals

David Webster, chairman of the Building Societies Association, warned yesterday that it “will not be easy” for mutuals to help the Prime Minister achieve his vision of getting the housing market moving again.

Average lending was £313bn in 2007, but fell away to £9bn last year after the financial crisis and worst recession since the Second World War.

Mr Webster said the coalition’s decision to allow the taxpayer-backed National Savings & Investments a bigger share of the savings market was “distinctly unwelcome” and predicted that it would restrict commercial lending by £2bn this year.

Speaking at the BSA’s annual conference in Birmingham, he said mutuals face “significant uncertainty” from new industry regulations, which will limit the amount they can lend.

“Financial stability is not cost free, nor is meeting Government borrowing targets,” said Mr Webster, who is chief executive of the Hanley Economic Building Society.

On the issue of wider regulation of the financial services industry, the BSA chairman said ministers have handed “huge powers” to the Bank of England and raised concerns over accountability, pointing out that the central bank governor will be chairman of the Monetary Policy Committee, the Financial Policy Committee and the Prudential Regulatory Authority among other roles.

Smaller mutuals should expect an increase in regulatory costs following the overhaul, he said.

In spite of these challenges, the conference heard that building societies have a tremendous opportunity to gain market share at the expense of discredited banks.

Mr Webster told delegates: “Frankly, if we cannot seize this moment and demonstrate a distinctive, robust, customer-focused alternative to the banks, then we may well look back with regret on any prevarication or lack of resolve.”

He welcomed recent pro-mutual statements from the Government but said the rhetoric should be backed up with action, starting with the remutualisation of state-owned Northern Rock.

“The disgrace within which our competitors are now held, many of whom owe their very existence to taxpayer subsidy because they were unable to stand on their own two feet, gives mutuals the opportunity of a lifetime to gain people’s trust and prove that they are relevant, indeed essential, to the age in which we live,” he said.

Other speakers included Robert Peston, the BBC’s business editor, who told delegates that confidence in building societies is probably at an all-time high and predicted that mutuals should find it easier to retain talent because of low wage inflation in the banking sector.

He also said new regulations that compel banks to hold more capital would erode some advantages they hold over building so-cieties.

Another of the speakers, Lord Digby Jones, the former trade minister and CBI director general, recalled how his grandmother, “a mill girl from Bradford”, used to give him half a crown every week to deposit at his local branch of the Halifax Building Society, which would later lend him the money to buy his first home in 1978.

He said “she would turn in her grave” at its remutualisation, subsequent mergers with Bank of Scotland and Lloyds and rescue by the taxpayer.

The conference heard from a leading light of the US credit union movement, Mark Meyer from the Filene Research Institute, who said “the notion of being by the people for the people, not shareholders, is very powerful”.

The economic way forward

DIVERSE voices from business, the media and financial services debated the prospects for the UK economy on the first day of the Building Societies Association annual conference.

Robert Peston, the BBC’s business editor, said the UK has so far only reshuffled its debt and the underlying causes of the financial crisis remain.

He said the nation needs to “consume less, invest more and sell more overseas”.

Robert Parker, senior adviser, at Credit Suisse, said investment by corporates and an undervalued sterling would drive the UK economy forward.

Lord Digby Jones, business ambassador, praised Britain’s thriving manufacturing sector.