BUILDING SOCIETES

Building societies are lending and saving institutions, and they compete with Banks. They are mutual institutions that are run by boards of directors, and whose investors, borrowers and account holders have a right to vote, receive information and attend and speak at meetings. Banks, in contrast, are companies owned by, and run for, their shareholders.

There are 59 building societies in the UK, with total assets of £360 billion. They also exist in Ireland, as well in New Zeland and Australia.

One of the defining features of a building society is that not allowed to raise more than 50 per cent of its funds from the wholesale markets. On average, it raises 30 per cent of its funds this way. This is one reason why building societies were less exposed to the credit crunch than banks.

Building societies have the sole task of meeting customer’s needs, but the banks must make a profit from their customers. Some building societies have been undercapitalized and a needed to grow fast. Between 1989 and 2000, 10 UK building societies decided to become banks.

In 2000, Barclays bought Woolwich, and in 2001, Halifax merged with bank of Scotland to form HBOS. In 2004, Abbey was bought by Banco Santander. Others sold themselves directly to banks.  Cheltenham & Gloucester is now owned by Lloyd`s TSB, and National & Provincial by Santander.