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Is the UK building society sector really on a knife edge?

A quick glimpse at the financial press at the weekend would suggest that the UK building society sector is in serious trouble. However, while the problems at the Dunfermline building Society have grabbed the headlines it is worth remembering that the building society sector is run on a very different basis to that of the UK banking sector. The vast majority of building societies depend upon customer deposits to fund their day-to-day operations, rather than money market transactions, which does limit their scope somewhat, but also gives them something to fall back upon.

It would appear that the Dunfermline building society has suffered substantial losses on a number of investments which while not uncommon in the sector would appear to be very specific to the society. Quite how this has happened is something of a mystery in a sector which has had a safety first reputation for many years although we are yet to see the details of the problem assets at the Dunfermline building society.

It was also interesting to see that none of the big players in the sector stepped in to bail out the society, suggesting that they do not believe issues with the Dunfermline will be replicated throughout the industry. The next few days will obviously induce some concern into the investment and consumer markets but there are hopes this is a one-off and is unlikely to be repeated again in the foreseeable future.

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