HM Treasury: Ensuring long-term stability for building societies

The Treasury has published a discussion document on options for securing the long-term stability of the building society sector.  

The paper seeks views from investors, members, societies and others on options for:

• New, more resilient capital instruments (ranking as Core Tier 1 or Tier 1)
• Modifications to existing capital instruments to make them more resilient in times of stress
• Enhancing the Government’s role in supporting societies to raise capital for stability and growth, including changes to legislation
• Exploring whether capital instruments abroad should be adopted in the UK.

While building societies have historically been well capitalised, and the majority of building societies have responded strongly to challenging conditions since the financial crisis, the new regulatory environment and increased market competition has raised a number of areas where reform could improve the resilience of the building society model. These include improving corporate governance and looking at new funding and capital models.

Financial Services Secretary to the Treasury, Paul Myners said: “Building societies have long been at the heart of financial services in the UK. The sector encourages a diverse financial system and offers a strong business model. The Government is keen to ensure that this remains the case in the long-term.

 “There is a need to consider whether the current capital instruments available to building societies are sufficient to ensure the long term stability and growth of the sector, as well as exploring the alternative options and what changes would be needed to introduce such instruments.”