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It’s a great pleasure to be with you this evening. I would particularly like to thank Damian Hinds and Antony Macrow-Wood for hosting today’s event.
Credit unions and mutuals more generally have been a vital part of the fabric of British society for centuries, encouraging saving, providing affordable credit and promoting healthy communities.
In thinking about credit unions it is worth thinking about the words of William Wordsworth when he said,
Life is divided into three terms - that which was, which is, and which will be. Let us learn from the past to profit by the present, and from the present to live better in the future.
So in the short time that I have with you this evening, I would like to say a little about the lessons we’re learning from recent past in the financial sector, a little about how we are applying these lessons to the reforms of the present and to share with you my vision of how credit unions fit into our plan for a better future.
Learning the lessons of the crisis
The first lesson we have learnt from the financial crisis is that we need new tools for the Authorities to deal with crises in the banking sector.
The Banking Act which followed included a special resolution regime to deal with banks and building societies in financial difficulties. This was used for the first time in the resolution of Dunfermline Building Society whose previous management had made a set of decisions that diverted the society from its historic and successful business model into new much riskier activities which it did not have the capacity to manage properly.
These are developments that the last Government put in place and we continue to support of them. But as well as developing tools that remedy the failure of financial services providers we need to put in place the right mechanisms to prevent failure in the first place.
That brings me on to the second lesson we have learnt from the financial crisis, which is that we need to get the system of financial regulation right.
At the heart of the banking crisis was a rapid and unsustainable increase in debt. Our macroeconomic and regulatory system utterly failed to correctly identify the risk this posed, let alone prevent it. No one was controlling levels of debt, and when the crunch came no one knew who was in charge.
The reforms set out by the Chancellor two weeks ago place the Bank of England in charge of macro-prudential regulation by establishing a Financial Policy Committee. And we will also create two new, focused regulators:
- a new prudential regulator under the Bank of England, headed by a new Deputy Governor; and
- a new Consumer Protection and Markets Authority
All the new bodies will be accountable to Parliament and their remit will be clear so that never again can someone ask who is in charge and get no answer.
The third and final lesson that I want to draw on is that too many of us had a misplaced level of confidence in the structure of the banking system that had grown up. So we have established an independent commission on the banking industry, chaired by Sir John Vickers.
The Banking Commission will look at the structure of banking in the UK, the state of competition in the industry and how customers and taxpayers can be sure of the best deal.
I am sure that the Credit Union sector will have much to contribute to the work of that Commission and I encourage you to engage with Sir John and his team as they go about their task.
It is vital that we learn the lessons of the past and lay firm foundations for rebuilding the financial services sector.
The Role of Mutuals
But as we go about the task of rebuilding, we need to be open minded and creative not just about the spectrum of services on offer, but also about the values and objectives of the organisations that that offer them.
And I sense a real appetite amongst many for a financial services sector that works in a different way and works to different values.
This is where mutuals come into play - they exist for the benefit of their members and they provide a service to the community at the same time.
As a Coalition Government, we stand fully behind this ethos. And we have committed to foster the diversity of financial services through support for mutuals such as building societies and credit unions.
Strong and Sustainable Mutuals
As we as a Government look to what we want to achieve over the next five years, credit unions play a full part in our vision of the Big Society and have a key role in catalysing social action in our communities.
But if the future of diversity in financial services is really to flourish, it must be backed up by the strength and sustainability of financial mutuals.
Financial mutuals must be supported by a modern legal and regulatory framework. As you will all know, there has in recent years been cross-party support for significant reform of the legislation underpinning the financial mutuals sector. Two Private Members Bills have received all party support and are helping the process of continuous improvement.
The Butterfill Act, or - not quite in the words of William Wordsworth - the Building Societies (Funding) and Mutual Societies (Transfers) Act 2007, has enabled transfers of ownership within the mutual sector, of different types of mutual, whilst maintaining the mutual ethos.
This Act enabled the transfer of the Britannia Building Society to Cooperative Financial Services, giving the members of the transferred society membership of the Coop group.
Other provisions in the Act gave the Government power to make amendments to the Building Societies Act, such as the funding limit.
Malcolm Wick’s Act - the Co-operative and Community Benefit Societies and Credit Unions Act 2010 - forms part of a series of legislative reforms benefiting the various types of mutual.
Its purpose is to update and improve governance of these societies and to enable legislative change for credit unions by permitting the assimilation of building society legislation into credit union law, without it being permitted to alter the constitutional elements of credit unions, such as the common bond.
A further important element is to rename the existing Industrial and Provident Societies Acts, using the modern terminology of Co-operatives and Benefit of the Community Societies.
This Act takes forward amendments that were not possible under the Legislative Reform Order.
I know many of you here tonight will be interested to know how the long-awaited Legislative Reform Order is developing. As you will know, it was broadly welcomed by the Regulatory Reform Committees of each House. Both Committees recommended acceptance of almost all the proposals in the Order but in each case wished to see a couple of amendments.
We are currently awaiting the appointment of new Committees who I trust will be as broadly supportive as their predecessors. I acknowledge that we have all waited a long time for this LRO and there have been further hold ups in the process as a result of the General Election.
I am afraid I cannot even now announce a date, but I can assure you that as a Government we will do all we can to implement the LRO at the earliest possible opportunity.
Expansion of Credit Unions
Over the past five years, the Financial Inclusion Growth Fund has provided almost a hundred million pounds of much needed investment for credit unions and CDFI’S, enabling them to expand and to upgrade facilities.
It has also provided vital training and support to boost their capacity to provide small loans households that would otherwise resort to high cost lenders.
The many Credit Unions and CDFIs that have participated in the Growth Fund have stepped up to this challenge admirably, making over a quarter of a million loans to low-income households during that time.
Initial findings from the evaluation of this investment show that participating Credit Unions and CDFIs appreciated the impetus it gave them to tighten up policies and procedures, and felt they operated in a more business like way as a result. Now is the time to put that experience to practice, ensuring that this massive injection of cash into the sector continues to sustain the welcome changes that it has stimulated.
Evidence from the evaluation shows that the biggest and most sustained differences to borrowers’ finances was made when the Credit Union:
- required them to open a savings account
- used “soft compulsion” to encourage the borrower to save regularly alongside their loan repayments
- provided money advice alongside the loan
These are exciting and encouraging findings - and clearly demonstrate the impact that Credit Unions can have when they are doing what they do best - actively engaging with customers to help them to improve their financial situation.
As credit unions seek to realise the potential that lies out there, they must first take a good look at themselves to ensure that they have the scale to be sustainable.
That is what Portsmouth Savers did recently and it led them to expand to cover whole of Hampshire. They have now achieved this with a combination of permanent offices and co-location in community facilities.
We are determined to help credit unions grow and expand into the future. But growth and expansion must be established on the basis of credibility - credibility that can only come as credit unions build sustainability. And it is in the interests of credit unions, the members of credit unions and the movement as a whole that sustainability is built.
This Government believes that strong credit unions will greatly enrich British society, so it is in our interest to do whatever we can to help the credit union movement to prosper.