MPs will consider fresh legislation over the coming months
MPs will consider fresh legislation over the coming months
Nationwide Building Society has issued a statement on major legislative changes impacting its operations. The well-established savings provider serves millions of members and has more than 600 branches.
The announcement from the mutual follows recent comments from senior Treasury officials about changes to banking regulations. The department will soon be presenting legislation to be considered by MPs. Gwyneth Nurse, director general of financial services at the Treasury, provided details on a “multi-year programme” currently underway to reform the mutuals and building society sector. A mutual is an organisation owned by its members, rather than being controlled by shareholders who receive profit distributions.
Ms Nurse outlined changes to UK law being developed following Chancellor Rachel Reeves’ 2024 Mansion House speech, in which she unveiled a package of reforms aimed at strengthening the mutuals and co-operative sector. These proposals included amendments to UK legislation to relax certain restrictions on building societies regarding how they finance their day-to-day operations.
An amendment to the Building Societies Act 1986 was introduced later in 2024, enabling funding limits on building societies to be relaxed. The change to existing legislation permits the Treasury to bring in further regulation “made by statutory instrument”, specifying which types of funding can be exempted from the funding limits.
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Ms Nurse confirmed her team is currently developing these measures. She informed the committee: “In the same speech [Mansion House 2024], the Chancellor announced that we would make progress on the statutory instruments we need to change the funding limit for building societies.
“We have not made progress on that yet, but I can tell you that we will be laying those statutory instruments before the summer recess. We have some resource that has come in to help us do that.”
Could unlock billions of pounds
This implies the legislation will be presented to Parliament in the near future, given that the summer recess commences on July 16 this year. Nationwide was questioned about what these regulatory changes to its funding limits would mean for its members.
A spokesperson said: “The Building Societies Act 1986 (Amendment) Act 2024 could unlock billions of pounds of additional lending capacity for mortgages, supporting families and first-time buyers, as well as boosting economic growth.” There have been other recent appeals to relax the constraints on building societies.
Sarah Harrison, chief executive of the Building Societies Association, also spoke to the Treasury Committee recently, urging for the existing capital requirements for lenders including Nationwide to be overhauled. She explained to the MPs: “At the moment, in the UK we have certain requirements in the prudential regulatory space, to require capital to be retained, often as a ratio of capital to assets, for good prudential reasons.
“Normally, the levels are set internationally but in the UK we’ve added a UK requirement, which is known as the leverage ratio buffer.” The purpose of these restrictions is to guarantee that lenders maintain adequate reserves so they can maintain their operations should their investments or loan repayments fall through.
Ms Harrison said: “In practice, what that means is some of the obligation on some of our building society members is to hold a lot more capital than is necessarily reflective of their risk portfolio.” She said that Nationwide had told her that, without the buffer in place, the organisation could potentially release an extra £30billion in capital to be directed towards business or mortgage lending.
When approached for a comment on this, Nationwide said: “Reducing leverage buffers would support additional lending to both individuals, via mortgage lending, and SMEs, through business loans. With the Government’s ambition to double the size of the mutuals sector, leverage ratio reform would support the sector’s growth potential, where current leverage requirements can often constrain further lending activity for lower risk providers.”
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