At Yorkshire Building Society’s Bradford HQ, our teams reacted with caution. Many of them had, sadly but reassuringly, worked through previous crises and were adept at managing our business through turbulent times.
My predecessor discussed the crisis and the gloomy outlook in our 2008 annual report. He said that “by continuing to focus first and foremost on serving our members’ interests and on protecting the financial strength of the business, we remain very confident about our future as an independent mutual building society”.
The same message shone through in 2009, 2010 and beyond. Each year, the length and severity of the crisis deepened. Those same analysts who had weathered previous storms could not have expected that 10 years later house prices in some areas would still not have recovered to their levels in 2007.
We entered the crisis with a strong balance sheet, and were not exposed to American sub-prime mortgages in the same way as other institutions were. We were able to support the members of other building societies whose balance sheets were not as strong, and merged with the Barnsley, Chelsea and Norwich & Peterborough building societies over time.
And 10 years on from the collapse of the financial system, I’m pleased to say that, as a mid-sized financial services mutual, our strategy of serving members’ interests has left us in a strong position as a provider of mortgages and savings to over three million people around the country.
We have offered savings and mortgages for 154 years, and in a dynamic world of challenger banks and fintech start-ups we intend to be around for a lot longer yet.
And in this fact lies one of the lessons of the financial crisis which policy makers would do well to bear in mind: the importance of a diverse financial services sector. We’re proud to be owned by our members, and proud to focus on our core business of offering a safe home for people to keep and grow their money, and help people borrow to buy their home.
Indeed, since the crisis, building societies have played a crucial role in supporting the UK economy. In the 10 years from June 2008 to June 2018, according to the Building Societies Association, building societies accounted for 46 per cent of the net growth in the mortgage market, much larger than our share of the overall mortgage market.
As we approach another defining moment in Brexit, it is important to recall this. After the crash, the international community rightly came together to regulate the financial services sector. The regulations have curbed the excesses of the pre-crash era and added checks and balances to the system.
The regulatory focus has, quite logically, been on the largest institutions which pose the biggest risk to the system. All firms need to implement a single rule book of regulations, and hold prudent levels of capital to protect their customers. This has been the right approach, but has resulted in some anomalies.
One key side effect has been a burden on smaller firms. Here in Yorkshire we have a hotbed of mutual lenders, including the Leeds, Skipton, Beverley and Ecology Building Societies, as well as ourselves, and there are 44 building societies across the country.
While we are the third largest building society with customers the length and breadth of the UK, some other societies focus on a particular region, county or even a single town with just one branch. But regardless of size, all of these societies need to fulfil the same regulatory requirements as a major bank. At the same time as adapting to increasing customer demands and challenges of digitisation, this is a major issue to contend with.
That regulatory burden should be looked at closely once the current turmoil around Brexit is resolved. Brexit gives policy makers an opportunity to encourage and protect the diversity of our financial services sector. Looking forward, we have the chance to ensure that regulation is proportionate for all institutions, large or small, and promotes prudent, long-term approaches to finance. This is not about a roll-back of the sensible measures that have been put in place but about tailoring them to institutions’ composition and risk profile.
In the event of another financial crisis, we are confident that the prudent measures we have put in place would continue to protect our members and retain our core strength as a mutual society. We should see the transposition of EU laws into domestic legislation as an opportunity, in the medium term, to strengthen a diverse and stable financial services sector.
Mike Regnier is chief executive of Yorkshire Building Society.