It is a pleasure to be speaking at the Building Society Association’s annual lunch, especially in such a successful year for the industry.
We have seen…
- financial success: Nationwide’s underlying profits rising 303% to £677 million
- ambitious growth: Yorkshire Building Society’s 50% increase in new lending
- technological innovation, with Cumberland launching their new mobile payments service
And we have seen building societies making the news in a rather unexpected way too.
Data published by MoneySuperMarket in September said that people who work in building societies are the UK’s safest drivers – almost 100 times less likely to cause an accident than surgeons or GPs!
For over two hundred years, since your precursors were established in the Midlands in the 1780s, building societies have played a unique and important role among British financial institutions.
Back then, they tapped into an important part of the British psyche – the desire to own the house you lived in.
The sector has evolved, of course, just like the world has. But what remains is your traditional ethos: of looking after the customer, and of meeting the customer’s needs.
Today, over 19 million people have an account in one of the 44 building societies in existence in the UK. And building societies have helped 3.1 million people to buy a home.
The government has committed itself to supporting diversity in the financial services sector. This commitment was enshrined in the coalition agreement, the first document we published as a coalition government – and we have been acting on it ever since.
So I was pleased to see the BSA, together with the Association of Financial Mutuals, launching today’s campaign to strengthen the role of mutuals and create a level playing field in the sector.
We need diversity among our financial institutions, because that is what gives the customer choice.
We need the customer to have choice, because that is what promotes competition.
And we need competition, because that is what keeps our financial sector world-class.
Competition and choice in financial services is certainly my personal mantra… and this government is committed to it.
So we have tried at all times to create the right conditions to allow you to thrive, while still maintaining your unique identity and status.
So today I would like to talk about what we have done to give you, as building societies, the legislative framework in which to prosper.
I will also set out our work to promote choice and competition in the sector more generally.
And I will finish by examining how the work that you do benefits the wider economy, and – if you’ll excuse the phrasing – builds society.
Building societies are key contributors to diversity within the financial sector – so we really do want to see you flourish.
Our challenge is to help the sector navigate its way through change in a way that doesn’t lose sight of those founding principles of societies.
The whole banking services sector has seen fundamental change since the 2008 crisis – and, as we saw yesterday, the reputation of the financial services industry still has a long way to go before it recovers.
Customers quite reasonably want to deposit their savings in institutions they can trust. They want confidence in the system. They want to be valued.
This is something which I think you could really capitalise on.
In many ways, the reputation of building societies helped them weather the storm.
From Ipswich to Penrith, building societies across the UK cater for a broad range of communities and demonstrate great breadth of business models.
Many of you have reaped the rewards of having low-risk business models, deposit-based funding, high levels of capital, strong local branding, and an ethical outlook.
So now you can of course take the opportunity to sell yourselves as the good guys!
We are very aware that yours is a sector with specific needs.
So we are ensuring, as a matter of priority, that new changes to the financial system don’t disadvantage you. And we are making positive steps to help both you and your customers.
In July 2012 we published our Future of Building Societies consultation, setting out our aspirations for the building societies sector, including the key role we see your sector playing in the future.
To the relief of many in this room, we exempted building societies from the ICB ring-fencing regulations. We took this view because the existing Building Societies Act was still robust, so the legal separation between low and higher risk activity would largely be irrelevant for the sector.
And we are reducing regulation on summary financial statements and building society floating charges.
I hope you will also welcome the fact that bodies set up by this government, such as the Financial Policy Committee (FPC), are keen to hear the views of your industry.
The leverage ratio is a case in point.
I am particularly pleased by the fact that the recommendations in the FPC’s Review of the Leverage Ratio report take into account the needs of lower risk sectors, such as mutuals.
Just under a year ago, the Chancellor wrote to the Governor asking that the FPC undertake a review of the leverage ratio. The FPC’s response was published on 31 October, and we are now consulting on how best to implement the recommendations.
I can confirm that the Treasury will propose to Parliament that the FPC be granted the following tailored powers of direction:
- a minimum leverage ratio for all PRA-regulated banks, building societies and investment firms
- a supplementary leverage ratio buffer for global systemically important banks, ring-fenced banks and large building societies
- and a countercyclical leverage ratio buffer applying to all institutions
We expect to legislate for the FPC’s new leverage powers in early 2015. And, because it has emerged that more work is needed to consider the impact of the Systemic Risk Buffer framework on ring-fenced banks and large building societies, the PRA will consult on the SRB framework next year.
This is important: proportionate, balanced regulation is essential for your sector. It is common sense that a lower risk sector does not need as much regulation as a high-risk one. So we will apply common sense.
The bank levy is also, I know, of interest to you.
I’m pleased we successfully negotiated a provision within the Bank Recovery and Resolution Directive and the Deposit Guarantee Scheme Directive which allowed the UK to fulfil our resolution financing requirements using the existing levy.
Imposing additional financial burdens would have hit building societies particularly hard. So we have been clear that the banking sector will not be required to pre-fund a national resolution fund.
We expect this will save millions of pounds for building societies, freeing up additional resources to provide better products for your customers and challenge other banks for a share of the market.
There is, of course, more to diversity than building societies. A successful retail banking sector comes from a variety of firms with a variety of ownership structures.
Put simply, diversity means customers having choice on the high street [and beyond], benefitting from innovation and receiving good service from their bank.
It also means businesses having options when it comes to securing the finance they need to grow and create new jobs.
So it is a really positive step that the BSA, together with academic partners, have written a report into diversity in financial services.
I welcome this important exercise. Increasing competition and choice in the banking sector is an integral part of our long-term economic plan.
I look forward to the publication of this report, which I understand will be very soon – and to reading your recommendations and discussing them with you.
I will be particularly interested in discussing how we can support new and smaller banks and building societies.
As a government we have already taken several positive steps here.
We’re creating a much more competition-focused regulatory environment.
We’ve introduced a new Payments Systems Regulator to look at fair access to the payments systems.
We’re carrying out a great deal of work to ensure that customers can find the best current account products for them, and easily make the switch to a new provider. It’s great news that Nationwide and Cumberland have both signed up to the Current Account Switch Scheme, and I hope that in time others will do the same.
We’re working – including through the Small Business, Enterprise and Employment Bill – to make it easier for challenger banks and alternative finance providers to offer loans to SMEs rejected by other banks.
And we’re harnessing the power of FinTech too. At the request of the industry, we legislated to put in place bespoke supervision for peer-to-peer lending. We have gone further by recently launching a public consultation on how to include peer-to-peer loans in ISAs.
Last week the Competition and Markets Authority (CMA) announced it will be launching far-reaching investigations into the state of competition in the personal current account and smaller business banking markets.
We welcomed this. It’s exactly why we created the CMA. Their decision is an important next step towards the goal of a highly competitive banking system, where banks have to work as hard as possible to win and keep customers by providing better products and services.
This stands to benefit everyone – whether they are building societies or financial technology start-ups or indeed the customer. As Henry Ford pointed out, it is, after all, the customer who pays your wages.
I had the huge pleasure of 25 years working in the industry, so being a bit of an old hand, I have always maintained the rather old-fashioned view that the banking sector has a very strong social purpose.
The banking sector (where of course building societies are an integral part) keeps the economy going.
It funds businesses, it creates jobs and it builds wealth.
It is a huge driver of this nation’s prosperity and supports businesses on a global scale.
It also helps people fulfil their ambitions – whether that’s buying your first house, saving up for a holiday, or investing in your children and grandchildren’s education.
I stress the phrase “saving up”. We want to incentivise a savings society, where people’s first instinct is to save up for things they want, rather than putting them on the never-never.
You as building societies can play a significant role here. With almost a third of cash ISA deposits, building societies have continued to punch above their weight in the savings market.
And we are creating the right conditions for you to do even better.
At Budget 2014, we announced a radical package of measures to simplify ISAs and incentivise individuals to save.
By increasing both the cash and stocks and shares limits in ISAs to £15,000, we are giving individuals greater freedom and control over how they wish to save…
… something which the BSA, consumer groups and savers have long called for.
Savers now have a far greater degree of flexibility over how they choose to save and invest. They can now transfer savings in a stocks and shares ISA to a cash ISA without losing the tax wrapper. And we’ve also expanded the range of ISA qualifying investments.
Our abolition of the 10% rate of savings tax means that an estimated 1.5million savers will pay less tax on their savings.
And our increase of the 0% band has taken a million people out of paying savings tax altogether.
We’re helping people to save – it’s now up to you to encourage them to put their savings in building societies.
You already offer some of the most competitive savings products for the customer – so I look forward to continuing to work together to develop a savings culture in the UK.
And mortgages are rightly a key battleground for building societies [– the clue’s in the name!]
And the evidence has shown that you have strongly stepped up to the mark, with impressive gains in market share since the financial crisis.
This government has always been clear that in the future we will need to be building lots more houses. And we have put in place a package of measures to make home ownership a reality for more people.
Since Help to Buy was first announced, over 52,000 households have completed mortgages – 33,900 of those via the Equity Loan scheme, which I know several of you are part of.
So, as we look at ways to boost homebuilding and home ownership, we hope you continue making the most of the opportunities this provides.
Another area in which building societies can and do play a leading role is financial education in schools.
Customers need to have the necessary financial awareness to pick which savings and mortgage products work for them – helping them make the right choice as individuals. It’s something which, as Ipswich Building Society put it, “you’re never too young to learn”.
I know that societies such as Nationwide already have well-established educational programmes.
And I understand that this year, Ipswich Building Society’s financial education programme, which has visited hundreds of primary schools in Suffolk since 2007, has for the first time been rolled out to secondary schools.
This is extremely timely.
In September 2014, financial literacy became a compulsory part of the National Curriculum for 11 to 16 year olds. Lessons teach pupils about the importance of budgeting, sound management of money, credit and debt, as well as understanding different financial services and products.
That is a key life skill, and I’m delighted that building societies are helping young people develop it.
It’s good for your business, and good for society.
So I am very positive about the future of the building society sector.
Your business model is one where the conflict between shareholder and customer interests doesn’t exist.
In the current climate, the traditional values your sector represents is what the market is searching for.
We in government will do our best to foster diversity in financial services, creating a level playing field for you.
Your challenge – how simple it sounds! – is to go out there and succeed.
Thank you – and the very best of luck.