Building society
A building society is a financial institution, owned by its members, that offers banking and other financial services, especially mortgage lending.
The term building society first arose in the 19th century, in the United Kingdom, from co-operative savings groups: by pooling savings, members could buy or build their own homes.
In the UK today building societies actively compete with banks for most "banking services" especially mortgage lending and deposit accounts. As of 2007 there are 60 building societies in the UK with total assets exceeding £305 billion[1].
Origins
The original Building Society was formed in Birmingham in 1774. Most of the original societies were fully terminating, where they would be dissolved when all members had a house: the last of them was wound up in 1980. In the 1830s and 1840s a new development took place with the Permanent Building Society, where the society continued on a rolling basis, continually taking in new members as earlier ones completed purchases, such as Leek United Building Society. The main legislative framework for the Building Society was the Building Society Act of 1874, with subsequent amending legislation in 1894, 1939 (see Coney Hall), and 1960.
In their heyday, there were hundreds of building societies: just about every town in the country had a building society named after that town. Over succeeding decades the number of societies has decreased, as various societies merged to form larger ones, often renaming in the process, and other societies opted for demutualisation followed by - in the great majority of cases - eventual takeover by a listed bank. Most of the existing larger building societies are the end result of the mergers of many smaller societies.
1980s and 1990s
In the 1980s, British banking laws were changed to allow building societies to offer banking services equivalent to normal banks. The management of a number of societies still felt that they were unable to compete with the banks, and a new Building Society Act was passed in response to their concerns. This permitted societies to 'demutualise'. If more than 75% of members voted in favour, the building society would then become a limited company like any other. Members' mutual rights were exchanged for shares in this new company. A number of the larger societies made such proposals to their members and all were accepted. Some became independent companies quoted on the London Stock Exchange, others were acquired by larger financial groups.
A movement arose whereby investors would open a savings account with a mutual building society, thereby getting voting rights in the society, and pressurise for a vote on demutualisation, with the intent of getting a windfall payment as a result. A number of societies' members and managers were very unhappy about such investors, who were termed carpetbaggers, maintaining that as mutual societies, they could supply better and cheaper home loans than the banks and demutualised societies, as they only had to make a profit to cover their operational costs, and had no need to generate an additional profit to return to shareholders.
In the end, after a number of large demutualisations, and pressure from carpetbaggers moving from one building society to another to cream off the windfalls, most of the remaining societies modified their rules of membership in the late 1990s. The method usually adopted were membership rules to ensure that anyone newly joining a society would, for the first few years, be unable to get any profit out of a demutualisation. With the chance of a quick profit removed, the demutualisations have slowed considerably, as of December 2001.
One academic study (Heffernan 2003) found that demutualised societies' pricing behaviour on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. [2]
Deposits up to £35,000 with building societies are normally protected by the Financial Services Compensation Scheme.
List of building societies in the United Kingdom that have demutualised
The following is an incomplete list of building societies in the United Kingdom that have since demutualised and hence become banks[3]. It is shown in order of demutualisation. Some of these institutions have since been taken over by larger financial services companies.
| Building Society | Date | Details | Current position |
|---|---|---|---|
| Abbey National | 1989 | Converted to plc | Now known as "Abbey", a subsidiary of Banco Santander |
| Cheltenham and Gloucester | 1994 | takeover by Lloyds Bank |
Now part of Lloyds TSB although C&G still have a branch network. |
| National & Provincial Building Society | 1995 | takeover by Abbey National |
Business merged into Abbey National, name no longer used |
| Alliance & Leicester | 1997 | Converted to plc | Remains independent but a takeover by Banco Santander, which also owns Abbey, has been approved by shareholders |
| Bristol and West | 1997 | takeover by the Bank of Ireland |
Remains a division of Bank of Ireland but its savings balances and branch network were transferred to the Britannia Building Society in 2005 |
| Halifax | 1997 | Converted to plc | Now a division of Bank of Scotland plc, the UK banking subsidiary of HBOS |
| Northern Rock | 1997 | Converted to plc | Nationalised in February 2008 following near bankruptcy due to the Subprime mortgage crisis |
| The Woolwich | 1997 | Converted to plc | Now part of Barclays plc. Woolwich brand name now only used for mortgages from Barclays with the Woolwich branch network merging with that of Barclays in 2007 |
| Birmingham Midshires | 1999 | takeover by the Halifax | Now a division of Bank of Scotland plc |
| Bradford & Bingley | 2000 | Converted to plc | Remains independent |
List of building societies in the United Kingdom that no longer exist
The following is an incomplete list of building societies in the United Kingdom that no longer exist, since they either merged with or were taken over by other building societies [4].
Remaining building societies in the United Kingdom
The remaining building societies are:
(Total group assets of building societies) Source: Building Societies Association[1]
* These societies do not form part of a corporate business group, although they may own other businesses.
** It has been announced that the Cheshire and Derbyshire building societies are both to merge with the Nationwide. Source: Building Societies Association [7].
*** It has been announced that the Catholic building society is to merge with the Chelsea. Source: Chelsea Building Society [8].
Other countries
- Australia: In Australia, building societies evolved along British lines. Because of strict regulations on banks, building societies flourished until the deregulation of the Australian financial industry in the 1980s. Eventually many of the smaller building societies disappeared, while some of the largest (such as St. George) officially attained the status of banks.
- Finland: In Finland the Mortgage Society of Finland, a permanent building society, was founded in 1860. Since 2002 mortgage loans are handled by Suomen AsuntoHypoPankki, the licensed bank owned by the society.
- Ireland: In Ireland, the three building societies are as follows; EBS Building Society, ICS Building Society, and Irish Nationwide Building Society
- Jamaica: In Jamaica, four building societies compete with commercial banks and credits unions for most consumer financial services.
- United States: In the United States, the savings and loan associations have a similar organisation and purpose.
References
- ^ a b Building Societies Association
- ^ Shelagh Heffernan. "The Effect of UK Building Society Conversion on Pricing Behaviour (March 2003)" (pdf). Faculty of Finance, CASS Business School, City of London. Retrieved 2007-10-10.
- ^ Building Society Takeovers and Flotations Building Societies Association website (Retrieved 5 April 2007)
- ^ Building Society Mergers and Conversions since 1980 Building Societies Association website (Retrieved 5 April 2007)
- ^ http://www.bsa.org.uk/docs/consumerpdfs/yearbooknamechangepart1.pdf retrieved 2008-07-12.
- ^ The Temperance Permanent was so-called because the directors were required to sign the pledge, a requirement which was dropped with the merger and name-change — to the reported dismay of some members. [The Times, Friday, Apr 25, 1975; pg. 4; Issue 59379; col E, 'Temperance abandoned by building society'. Retrieved from InfoTrac on July 17, 2008.]
- ^ BSA welcomes mergers (Retrieved 8 September 2008)
- ^ Chelsea and Catholic building societies to merge (Retrieved 13 September 2008)
See also
External links
- Building Societies Association
- The History of Building Societies from the Building Societies Association website.
Template:Scottish Building Societies
