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Why are the Yorkshire and Chelsea building societies talking?

As speculation mounts this evening that the Yorkshire building society and the Chelsea building society will soon announce a merger of their operations, many are wondering why the ailing society sector appears to be the next merger and takeover hotspot. What is it which has prompted these two building society giants to even discuss the possibility of getting together?

Back in February the Building Societies Association commented that various government changes in the regulatory framework for the financial sector as a whole, including the mutual society, would change the playing field for ever. A need to increase capital adequacy, primarily because of the banking collapse, was extended to building societies which has put many of the smaller operations under pressure. As a consequence, many people believe that the Chelsea and Yorkshire building society talks will be the first of many in the industry as the cost of regulating such operations continues to grow.

There is a growing view that the government and regulators have "thrown out the baby with the bathwater" and impacted upon the mutual sector, a sector which for many years was deemed to be the safest financial sector in the UK. In many ways it is open season for the financial sector and nothing the government or the regulators do is frowned upon by the public.

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