Saving finance through mutualisation

As we know, there\’s all sorts of people telling us that it\’s finance capitalism which is the problem. Those shareholders greedy for their returns: if we just got rid of them and had mutuals as the major part of that finance system then all our worries would go away.

Yeah, right.

Capital adequacy is a mutual headache for UK\’s building societies

Ye see? If there aren\’t any shareholders, then where is the capital going to come from?

There\’s no suggestion that Nationwide has a problem. But at the moment the only way it can rebuild capital is through retained earnings which means less competitive rates for customers. Its margins have already shrunk drastically as the official Bank rate has hit 0.5pc. Its ability to provide consumers with credit, to help get the housing market and wider economy going next year, is severely constrained given the combination of losses on bad loans and increased regulatory demands on capital.

Sure, shareholders take profits out when there are any….but they also provide the capital when more is needed. Mutualisation just ain\’t the silver bullet some seem to think.

2 comments on “Saving finance through mutualisation

  1. Which, when you take it one stage further, is why the nastier, more extremely capitalistic and greedy of the lovely cuddly building societies demutualised in the 90’s. To get access to capital and free themselves of the stringent mutual capital adequacy requirement.

    Arguably, the fact that the largest ones did so – except Nationwide – allowed Nationwide to survive as a mutual by allowing it to dominate the mutual market as the rest went off in pursuit of things capitalistic. Its capital position wasn’t helped when it followed the Government’s urging to keep reducing its SVR in line with reductions in BoEBR; shenanigans with the FSA and the wording of Key Facts Illustrations.

    When will Government learn that meddling almost inevitably produces the opposite result to the one they hope for?

  2. When will Government learn that meddling almost inevitably produces the opposite result to the one they hope for?

    Oh, I’m sure they know. It’s the interval from something is being done to it’s all gone pear-shaped that counts: political capital is created during this time. The pear-shapedness can be glossed over by announcing a new thing that is being done. And so the game continues.

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