Building Societies - where did it all begin?

Eurobase International Group has recently expanded its presence in the Building Society market through the acquisition of the specialist Building Society software solution Parity Treasury Management

This development reminded me of the importance that mutualisation played in the global financial industry.  It took me back to my studies of the sector when I was the Chief Dealer of Cooperative Bank plc in the mid-eighties. In those days Coop Bank was owned by the Cooperative Wholesale Society in Manchester. Northern England was a powerhouse for these developments and the mutualised cooperative sector saw ongoing repercussions to the structure of the banking industry - from Europe to the USA.

Building Societies hail from the 18^th century. They started an era of cooperative savings and loans groups based on the principle of mutualisation. The first building society started in Birmingham during its halcyon days of rapid economic growth, based on the metalworking industry that brought much prosperity. From these beginnings, the building society movement flourished with a society in virtually every significant town and often named after the resident town or district. It was an epoch that marked the start of mutual societies with the Cooperative Movement coming later, towards the end of the century based on a principle of mutualisation that flourished originally in Britain and France. The co-operative movement became significant after the founding of the Rochdale Society of Equitable Pioneers. The “Rochdale Pioneers” that formed the basis for the modern cooperative movement in the UK in 1844 later led to similar developments abroad. Significant credit unions started a little later in the 19^th century in Germany. In 1852 urban unions appeared and rural unions were started by Friedrich Wilhelm Raiffeisen in 1864 and his name lives on with many mutual banks in Europe bearing his surname! At the same time as these developments, the Savings Bank sector started being especially popular, in France (postal savings industry) and Germany in its early days. The names of numerous Sparkasse’s (Germany) and Cassa di Risparmio’s (Italy) live on today as well many other examples, in other countries, of these mutual savings institutions. However, I personally credit these developments as having their roots in that first building society (Richard Ketley’s at the Golden Cross Inn, Birmingham in 1775) and the rapid growth that this spawned so that by the Jubilee of this historic moment in 1825 some 250 building societies were in existence throughout the country.

The growth of Building Societies (some fully terminating - being wound up when each individual member had a house and the society would then dissolve) really was the base for a massive mutual sector in the financial industry of Europe and beyond. The Building Societies became such a significant force on the UK financial scene that by 1874 the hand of regulation appeared (following on from earlier statutes such as The Regulation of Benefit Building Societies Act in 1836) with the landmark Building Societies Act. From these historic beginnings the growth of the Building Societies began to wane in more recent times. At the end of the 20^th century they were ushered into a period of demutualisation and conversion to or acquisition by a bank. Notwithstanding this period some 44 societies still flourish in Britain under the watchful eye of the Building Societies Association (BSA) and the influence of the idea formed in Britain is especially evident throughout the Commonwealth and beyond.

The Building Societies continued influence today can been seen in the announcement by the BSA that –

“Today the Building Societies Association (BSA) releases mortgage lending and savings figures for all 44 building societies for the second quarter of 2016.  The figures show that societies maintained their strong mortgage market share, following the surge in transactions in the previous quarter to beat the change in stamp duty at the start of April. During the second quarter, activity may also have been affected by the EU referendum at the end of June.  Elsewhere, societies have seen a sizeable influx of cash savings during the second quarter of 2016.”

Andrew Gall, BSA Chief Economist commenting on this release stated –

“Building societies remain popular with consumers, performing strongly in both the mortgage and savings market in the second quarter of the year. They were the main driver of growth in the mortgage market, accounting for 82% of net lending. It remains too early to tell how confidence in the housing market will be affected by the decision to leave the EU, but it remains business as usual for building societies.”