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Savings protection scheme takes toll at Nationwide Building Society

In a further reflection of the growing unease in the building society sector it was today revealed that the Nationwide Building Society has taken a £241 million exceptional charge for its share of the Financial Services Compensation Scheme. Designed to offer a safety net to retail sales in the UK the system appears to be somewhat out of sync can and accounted for a 69% fall in pre-tax profits to £212 million. When you arrive at a situation whereby over half of your profits are eaten up by premiums to the savings protection scheme perhaps it is time to review the system?

The problem, according building society representatives, is the fact that the premiums paid are based upon funds held on deposit, rather than taking into account the safer environment of the building society sector. It appears as though companies such as the Nationwide pay the same percentage premium as banking institutions which may well take significantly greater risks with their assets. So in effect we are seeing the more conservatively run financial institutions of the UK forced to bail out their riskier counterparts.

Unfortunately, it seems unlikely that the Financial Services Authority will amend the terms in the short to medium term but surely a longer term review is called for.

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