Tuesday, 9 July 2013

Will Nationwide be forced to become a bank?

Nationwide has important, totemic status among the mutual’s, in that it is the biggest of them by far, and it battled through the great crash of 2007-08 relatively unscathed. Changing it’s status would be very bad news for the future of mutual building societies. Which is one reason why many politicians and commentators posited that mutuality [ownership by customers rather than by conventional investors] might be the way forward for retail banking.

The recent financial woes of mutually owned Co-op Bank, and its forced decision to obtain a listing on the stock market, show that reports of a mutual revival were premature, to say the least. And Mervyn King's last act as Bank of England governor, which was to encourage the unexpected decision of the Prudential Regulation Authority's board in favour of early introduction of a tough new leverage ratio, is another blow to the mutual movement in finance.

Imposition of a 3% leverage ratio, and the possibility that this could be increased at some point to 4% - which is what the Vickers Commission wanted - poses both a short-term and a long-term problem for Nationwide.

All banks have to meet what is known as a capital adequacy ratio, set by the notorious Basel Committee, which is the ratio between loss-absorbing capital and loans weighted by risk. Loans made by the Nationwide and other building societies are primarily prime residential mortgages, which are seen by regulators as low risk.

Here is perhaps Mr Carney's first challenge: Can he help Nationwide to remain as a mutual, and thereby give hope to those who believe in mutuality?

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