Adding value - the case for building societies
A Building Societies Association case study

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Page 5: Benefits of mutuals

There are numerous benefits that arise from the existence of mutuals in the financial services market:

  • Having different types of business organisation makes the market more responsive to external and internal change.
  • Building societies provide competition for banks within the financial services market (for example, through offering lower rates of interest).
  • Building societies provide greater choice to the consumer.

It is the existence of these and other external factors, which makes mutuals a classic case for public policy intervention. At the same time, there are a number of arguments for the conversion of mutuals into plcs:

  • Diversification: it was thought that the mortgage market would grow more slowly and competition is therefore more likely to increase.
  • Capital raising: as plcs, converted societies gain access to more capital markets.
  • Acquisitions: these are easier for plcs who can offer their own shares, whereas building societies have to use cash to buy companies.
  • Increased accountability: plcs can be considered more accountable to their shareholders than building societies are to their customers.
  • Large mutuals are remote from their members.

New legislation, such as the Building Societies Act 1997, made some of these reasons obsolete and others are open to dispute. For example, many people would argue that member pressure makes mutuals accountable and that mutuals are actually less remote from their customers because the link between supplier and consumers is more direct.

Building Societies Association | Adding value - the case for building societies