Building
Society
A building society is a
financial
institution,
owned by its
members,
that offers
banking and
other
financial
services,
especially
mortgage
lending.
The term
building
society
first arose
in the 19th
century, in
the United
Kingdom,
from working
men's
co-operative
savings
groups: by
pooling
savings,
members
could buy or
build their
own homes.
In the UK
today
building
societies
actively
compete with
banks for
most
"banking
services"
especially
mortgage
lending and
deposit
accounts. As
of 2007
there are 60
building
societies in
the UK with
total assets
exceeding
£305
billion.
The original
Building
Society was
formed in
Birmingham
in 1774.
Most of the
original
societies
were fully
terminating,
where they
would be
dissolved
when all
members had
a house: the
last of them
was wound up
in 1980. In
the 1830s
and 1840s a
new
development
took place
with the
Permanent
Building
Society,
where the
society
continued on
a rolling
basis,
continually
taking in
new members
as earlier
ones
completed
purchases.
The main
legislative
framework
for the
Building
Society was
the
Building
Society Act
of 1874,
with
subsequent
amending
legislation
in 1894,
1939 (see
Coney Hall),
and 1960.
In their
heyday,
there were
hundreds of
building
societies:
just about
every town
in the
country had
a building
society
named after
that town.
Over
succeeding
decades the
number of
societies
has
decreased,
as various
societies
merged to
form larger
ones, often
renaming in
the process:
most of the
existing
larger
building
societies
are the end
result of
the mergers
of many
smaller
societies.
In the
1980s,
British
banking laws
were changed
to allow
building
societies to
offer
banking
services
equivalent
to normal
banks. The
management
of a number
of societies
still felt
that they
were unable
to compete
with the
banks, and a
new Building
Society Act
was passed
in response
to their
concerns.
This
permitted
societies to
'demutualise'.
If more than
75% of
members
voted in
favour, the
building
society
would then
become a
limited
company like
any other.
Members'
mutual
rights were
exchanged
for shares
in this new
company. A
number of
the larger
societies
made such
proposals to
their
members and
all were
accepted.
Some became
independent
companies
quoted on
the London
Stock
Exchange,
others were
acquired by
larger
financial
groups.
A movement
arose
whereby
investors
would open a
savings
account with
a mutual
building
society,
thereby
getting
voting
rights in
the society,
and
pressurise
for a vote
on
demutualisation,
with the
intent of
getting a
windfall
payment as a
result. A
number of
societies'
members and
managers
were very
unhappy
about such
investors,
who were
termed
carpetbaggers,
maintaining
that as
mutual
societies,
they could
supply
better and
cheaper home
loans than
the banks
and
demutualised
societies,
as they only
had to make
a profit to
cover their
operational
costs, and
had no need
to generate
an
additional
profit to
return to
shareholders.
In the end,
after a
number of
large
demutualisations,
and pressure
from
carpetbaggers
moving from
one building
society to
another to
cream off
the
windfalls,
most of the
remaining
societies
modified
their rules
of
membership
in the late
1990s. The
method
usually
adopted were
membership
rules to
ensure that
anyone newly
joining a
society
would, for
the first
few years,
be unable to
get any
profit out
of a
demutualisation.
With the
chance of a
quick profit
removed, the
demutualisations
have slowed
considerably,
as of
December
2001.
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