Building societies claim they are being forced to shoulder the burden of compensation paid to the savers of failed banks.
The government's bailout of major banks is unfair on the building societies sector, it has been claimed. According to the Building Societies Association (BSA), its members are being forced to pay for failed banks while dealing with their own difficulties internally.
Speaking at the organisation's annual lunch, BSA chairman John Goodfellow insisted the mutual model was strong. However, he claimed that building societies are having to shoulder the cost of the Financial Services Compensation Scheme (FSCS).
The scheme is currently paying compensation to 240,000 UK savers with the collapsed Icelandic bank Icesave and has taken out loans to cover deposits held with other banks, including Bradford & Bingley. This is something building societies have to consider when structuring their own interest rates, Mr Goodfellow claims.
"There has been no requirement for any government bailout of the building society sector; rather difficulties have been dealt with within the sector. At the same time, however, societies have been called upon to pay a significant share of the cost of bailing out failed institutions in the banking sector," he remarked.
According to Mr Goodfellow, a review of the FSCS and an examination of risk related funding are now needed to ensure that financial institutions that act prudently are "appropriately rewarded".
The FSCS became operational in December 2001. It protects deposits, insurance policies, insurance broking, investment business and mortgage advice and arranging.
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