Can the building society sector survive the ongoing recession?
As news of significant debt downgrades in the building society sector continues to sink into the financial markets, there are concerns about the age old mutual sector. While UK banks have grabbed the headlines over the last few months, taking significant finance from UK taxpayers, building societies in general have remained fairly stable with the exception of a couple of smaller societies.
There was a feeling that the problems in the sector were unique to the societies involved, which were eventually taken over by larger societies, and the sector as a whole was still fairly stable. However, the significant downgrading of ratings by Moody's has shocked many and prompted a rethink of the safety aspects of the UK building society sector. On the positive side, many people may not be aware that UK building societies are also members of the UK banking compensation scheme and attract the same benefits and guarantees for savers.
It will be interesting to see how the UK government responds to the potential dangers in the short to medium term as investors reconsider their positions as potentially we could see significant withdrawals from the sector. Scaremongering and inaccurate reports could cause significant damage to the short and medium term outlook for the sector and possibly the long-term stability of the building society movement in the UK.
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