Speaking at the BSA annual lunch yesterday, Graham Beale, chairman of the BSA, said it was concerned over the proposals relating to building society capital.
Beale questioned the FSA’s view that PIBS – a form of building society capital – should be regarded as Tier 1 capital, rather than core Tier 1 – despite legal and practical arguments to the contrary put forward by the BSA.
He said: “I would encourage the FSA in particular not to back us into a corner by an over rigid interpretation of the capital requirements directive. Such a policy is, in execution if not intention, anti-mutual and we are determined to challenge it.”
He explained: “The Tripartite has made it very clear that they want to see a greater quantity and a better quality of capital across the whole of the financial services sector. And this is where the building society sector has a major issue. We have the strongest and purest levels of capital in the industry but our ability to manufacture higher levels of capital is limited without compromising our mutual status.”
Beale also noted that demand for retail deposits from institutions has never been greater as they refinance their balance sheet in the retail rather than the wholesale market.
He said “The net consequence is that the margin between savings rates and mortgage rates has been eroded… but the demand for retail deposits is so intense that rates have been pushed up in some cases to uneconomic levels.”
On the subject of emerging regulation, Beale warned that the effect of regulatory change has become more difficult to interpret. Emerging regulation will come at a cost, which will ultimately have to be borne by the consumer in terms of more expensive products and there is a very real danger that the law of unintended consequences will prevail, he said.
