How the Co-op Bank saved the mutual sector
The Co-op Bank’s merger with Britannia Building Society at the height of the financial crisis may have been a major blunder for the bank, but top regulator Andrew Bailey thinks it could have saved the industry.
In fact the cost to other building societies of rescuing Britannia depositors could have driven many smaller institutions to the wall, Bailey told MPs today.
The Britannia’s loan book was in a poor state, and without the merger with the Co-op bailey believes the building society would have failed.
Savers in the building society would have been rescued by the Financial Services Compensation Scheme, as happened with the Bradford and Bingley, and the Dunfermline.
But those rescue costs are paid back over the years by the remaining mutuals – and already they are paying around 25 per cent of their profits to the FSCS.
Add in the Britannia, which was the second largest building society at the time, and it is a recipe for disaster.
“That is a burden on building societies,” Bailey told the Treasury Select Committee.
“Earnings in building societies are low because of the squeeze on net interest margins, so that is 25 per cent of a small number.”
“Had we put the Britannia in there, it would be much larger than 25 per cent and we would have seen more building societies disappear because those costs are not sustainable.”