Building societies struggling to keep pace with UK banks
The building society movement is starting to feel the pain of the UK recession as base rates fall to record lows and many building society savers are looking elsewhere to invest their money. Even though there has been a change in funding options for the UK building society sector, individual building society still very much depend upon savers deposits to fund their mortgage, loan and other business activities. As more and more savers continue to withdraw funds from their savings accounts we could see a liquidity squeeze appearing in the building society sector.
We have already seen a number of the smaller building societies merging with larger operations to ensure their financial viability in the longer term. As the squeeze continues, it appears inevitable that more and more building societies will need to merge to ensure they have at least a fighting chance of surviving the recession. In a worst-case scenario, we could see the UK government forced into a bailout of the UK building society sector although whether this would demand the same level of "importance" as the UK banking sector remains to be seen.
While the funding options available for banks and building societies have a lot more in common than they did over a decade ago, building societies still very much depend on savers deposits to fund their everyday operations.
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