Mutual savers offered extra deposit protection
Building society savers have been offered additional deposit protection by the financial watchdog today, which takes into account the number of mergers across the mutual sector.
The Financial Services Authority (FSA) is introducing new rules that enable building societies that merge to keep their separate compensation limits.
Jon Pain, retail markets managing director at the FSA, says the rule change is designed to protect consumers as well as merging societies that fear a run on deposits.
“Following mergers this will help existing savers with the societies who want to keep below the deposit protection limit and also reduce withdrawals from the successor society driven purely by compensation considerations on the part of savers,” Pain explains.
However, the new rules only apply if a successor society decides to continue to operate the business of the dissolved society under the name of that society.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.