4th July 2013
I recently visited the Nationwide Building Society Headquarters in Swindon to discuss the future of banking in this country. Over the last decade the banks have reeled from one self-inflicted wound to another. First we had the financial crisis of 2008, where many banks over extended themselves and put their customers and shareholders at risk. Then came the PPI scandal with the mis-selling of products, and finally the Libor fixing scam, the impact of which is still being felt and investigated.
Each scandal saw the banks trying to maximise income at the expense of their customers, whilst putting savings and investments at jeopardy through their risky behaviour. Yet despite these troubles the building society sector has continued relatively untroubled. Their reliance on deposits as the source of their capital has lead to a far sounder lending and savings model. The 47 remaining building societies now seem to be enjoying something of a renaissance.
We need to ensure that neither the British Government nor the European Union start over-regulating this sector of the financial system as they seek to reign in the powers of the big high-street banks. Nationwide alone employs over 7500 people in the South West and it has a proven track record for prudent lending. As the 2nd largest savings provider in the UK, Nationwide pays the second largest amount into the financial compensation scheme. This creates the situation where a responsible lender, and its customers, are paying for the mistakes of less scrupulous lenders.
Nationwide could be hit by rule interpretations designed to ensure good behaviour on the part of the banks. This ‘one-size fits all’ approach focuses on measuring capital against loans. The problem is that no account is taken of how risky those loans are. Sir Mervyn King’s final legacy is now punishing those that have behaved correctly alongside those who have behaved appallingly.