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
19th century Britain from working men's
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 2006 there are 63 building societies in the UK with total assets exceeding £260 billion
[ Building Societies Association].
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. 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: most of the existing larger building societies are the end result of the mergers of many smaller societies.
In the
1980s, British banking laws were changed to allow building societies to offer banking services equivalent to normal
banks. Building societies, in the classic form, were
mutual organisations, jointly owned by those saving and borrowing. From the 1980s onwards, a number of societies, under pressure from members, `
demutualised' to become commercial enterprises with
shares of
stock like any other company: members of the society would get a cash `windfall' - usually several hundred pounds, sometimes more - as their share of the assets of the society. This happened to a number of the larger societies, several of which were bought out by
banks after their
demutualisation.
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.
The following show a number of notable building societies in the United Kingdom that have since demutualised and hence became banks and the list is shown in order of demutualisation.
*
Abbey National - 1989
*
Cheltenham and Gloucester - 1994 (following a takeover by
Lloyds Bank)
*
National & Provincial Building Society - 1995 (following a takeover by the Abbey National)
*
Alliance & Leicester - 1997
*
Halifax - 1997
*
Northern Rock - 1997
*
The Woolwich - 1997
*
Birmingham Midshires - 1999 (following a takeover by the Halifax bank)
*
Bradford & Bingley - 2000
*
Bristol and West - (was demutualised but has since remutualised following a takeover of the savings balances and branch network of Bristol and West from their owners
Bank of Ireland to the
Britannia Building Society in
2005).
The 10 largest of the remaining building societies are listed below.
(Total Group assets in
sterling, as of May 2006.)
#
Nationwide £111,592m#
Britannia £32,431m#
Portman £17,765m#
Yorkshire £16,298m#
Coventry £11,090m#
Chelsea £9,656m#
Skipton £9,156m#
Leeds £7,065m (name changed from
Leeds & Holbeck mid-2005) #
West Bromwich £5,641m#
Derbyshire £5,097m
Source:
Building Societies AssociationIn
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.
In the
United States, the
savings and loan associations have a similar organization and purpose.
In
Harold Pinter's
The Birthday Party Goldberg berates
Stanley saying, "No society would touch you. Not even a building society."
*
Mutual organisation*
UK topics*
Demutualisation
