Financial Services Authority responds to building society concerns
Financial Services Authority response to building society concerns
As we covered in one of our posts yesterday, the Financial Services Authority (FSA) is currently undertaking a significant review of the building society sector. While it is rumoured that their lending powers will be curtailed somewhat there is also a suggestion that those looking to divert away from their "traditional activities" will be forced to undergo specific stress tests to show they can cope with any added risk.
This is the latest government attempt to shore up the building society sector which has been, and continues to be, under significant pressure. We have seen suggestions that the West Bromwich building society is having financial difficulties, the Dunfermline was recently split up and sold off and other smaller societies are said to be on the verge of serious financial troubles. It appears all of the problems arose as more and more building societies took on riskier assets than they had traditionally been associated with. This included the likes of sub-prime mortgage loans pre-packed into bonds which were then sold on to investors such as UK building societies.
While there were other ventures into pastures new it is the sub-prime mortgage market which appears to have been the undoing of many. Whether the authorities can organise a structured exit from such markets remains to be seen.
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