A new report published for the Building Societies Association has put the case for returning Northern Rock to a mutual status, once the home for all building societies. The report suggests three key economic reasons why a stronger mutual sector would be beneficial to the financial system. Bio-diversity – A stronger mutual sector would help to counterbalance the now plc dominated financial system, while helping spread the wealth and welfare from the City to regional and local economies. The report also found that mutuals usually have lower risk profiles as they operate for the benefit of their members (savers and borrowers) rather than their shareholders where profit can be the driving force. Competition was cited as the third driver where a mutual Northern Rock, would help the Government meet its objective of supporting competition and diversity. The report said returning Northern Rock to a mutual status could allow the taxpayer to be repaid over time, providing the best outcome in returning the full value to the taxpayer. Jonathan Michie, Professor of Innovation and Knowledge Exchange at the University of Oxford and primary author of the report, said: "We must not allow the UK's financial services sector to return to the 'business as usual' model that has proved so costly to the economy and public finances. Already we are seeing a return to the bonus culture. This is fuelled by profits boosted by the increased market power of banks. It is vital that the banks face strong competition from mutual building societies”. Adrian Coles, director general of the BSA, said “Given that remutualisation would strengthen competition and create a more diversified financial sector, it could be expected to generate an advantage to the taxpayer over the long run in excess of the immediate benefit of any capital proceeds in the short run."
BSA report calls for Northern Rock to be remutalised.