Building societies fighting bank levy
Feb 18 2009 by Graeme King, The Journal
NORTH building society bosses have attacked a Government scheme to look after the customers of failed banks which they say will hit their profits and force them to give a worse deal to their own customers.
The Financial Services Compensation Scheme (FSCS) was launched to ensure those who bank as customers of failed banks such as Bradford & Bingley are not left out of pocket – and it is funded by a levy on every financial institution in the country.
But building societies, led by the Newcastle and the Darlington in this region, say they are being discriminated against because the levy is calculated on the level of retail deposits they hold.
Building societies say the levy amounts to around 15% of their profits, where it would only add up to around 5% of the average bank’s profits as banks rely more on borrowing and less on customer deposits. Societies fear it will cost them £200m a year for the next three years and that they will eventually have to pass on the cost to their customers as they will not be able to afford to offer such good savings and mortgage deals. The Newcastle alone faces a £4.3m bill this year.
An Early Day Motion has been drawn up asking for the Government to step in and reform the FSCS, and it has won backing from right across the country, including many North East MPs.
The Newcastle and Darlington building societies are backing the campaign, in alliance with the Building Societies Association which represents 55 societies nationwide.
The societies fear they will have to pay out even more should the FSCS require the repayment of capital borrowed to bail out the Bradford & Bingley, rather than just the interest on the loan, as is currently the case.
Colin Seccombe, chief executive of the Newcastle Building Society, said: “We have done all the good things that we should be doing, and now we are being penalised for that. We realise we have got to make some contribution, but the balance of what we pay is badly skewed against us. We are taking a disproportionate hit.
“We have got to either adjust the volume of lending we do, make mortgage rates more expensive than they need to be, or make saving rates less attractive.”
David Copland, marketing and communications manager at the Darlington Building Society, said: “The FSCS contribution has fallen disproportionately and unfairly upon building societies. It is in effect an unforeseen and unbudgeted-for tax that will impact on the profits of building societies for years to come.”
Dave Anderson, MP for Blaydon, said: “The building societies have been behaving admirably, and it’s unfair if they have to pay more than their fair share for a fund they have never dipped into. If the argument the societies are putting forward holds water, the Government should certainly put it right.”
Alan Beith MP for Berwick, said: "It is completely unreasonable to expect the building societies to pay a much higher contribution to the fund than banks, when the banks' lending strategies have contributed to the economic problems and we are still seeing senior bankers receive big bonuses."
Ronnie Campbell, MP for Blyth, said: “The building societies have not been reckless – they have been very thrifty, and have come out of the banking crisis as shining lights. Anybody who does a good job, and shows the banks how it should be done, should not be penalised.”
The scheme covers failures such as Bradford & Bingley, the Icelandic banks and London Scottish, but does not apply to the nationalised Northern Rock, which is classed as a viable business by the Financial Services Authority.
