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Building Societies hate our compensation scheme

I blogged recently about the Financial Services Compensation Scheme (FSCS) being a method of robbing the prudent to protect the irrational.  The blog was motivated by discussions with our Building Societies (thrifts) who are comlaining that this is a tax levied upon building societies, who own many of the major deposits of UK citizens today, to prop up the lenders with poor risk management policies such as Northern Rock. 

If any example were needed of why this scheme is unfair, Skipton Building Society are a great example. Their CEO David Cutter is quoted in today's Telegraph:

"There is a lot of anger in the sector about how inequitable the scheme
is.  We acknowledge the importance of a national safety
net for savers [but] it is unjust that building societies, which have an
inherently safer business model, are bearing a disproportionate cost for
banks that had riskier models."

Too right.

He's angry because his Society has had to pay £16.3 million in fees
to the scheme, halving the society's profits for 2008.

The largest Building Society, Nationwide, has been saying this for some time, and called for riskier banks to be forced to invest more in the scheme back in November.

Their CEO, Graham Beale, said back then: "as a prudently run organisation it is highly regrettable that the cost of
failure of banks who took on substantially greater levels of risk than we
are prepared to should be borne by Nationwide's members."

This is an issue that is sure to divide the industry and, with financial institutions in other regions working with a similar model of protection, will cause a friction that will come to a head at some point this year.

Meanwhile, the prudent continue to feel the punishment for the mistakes of the irrational.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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