'Make Northern Rock a building society'
Sunday, 27 September 2009 07:18
A report into the future of Northern Rock is calling for the nationalised bank to be made back into a building society.
Northern Rock demutualised in 1997, but the Centre for Mutual and Employee-owned Business at the University of Oxford, concludes the next move for the Novocastrian mortgage lender should be to become a mutual once more.
Northern Rock is currently undergoing a restructuring - cutting off the mortgage book from the main business of savings, new mortgages and its branches.
It is thought without these so-called toxic mortgage assets on the books, it will be easier for the government to find a buyer.
The lender currently owes the state around £11 billion - after being nationalised in February 2008 and given state support of £25 billion.
The Treasury has already received a number of approaches from buyers, and a sale of Northern Rock before the election would be seen as a expedient for Labour.
However, the report - backed by the Building Societies Association (BSA) - claims making Northern Rock a mutual would aid the 'bio-diversity' of the UK banking system, increase competition on the high street and reduce risk appetite.
It claims an extra major mutual on the high street would counter-balance the "short-termist' pressure of the City and the larger banks.
The number of major banks on the high street has been depleted substantially over the last year. Lloyds Bankings now includes all the HBOS and LLoyds TSB brands, while Santander has Alliance & Leicester, Abbey and Bradford & Bingley.
Professor Jonathan Michie 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. That would also reduce the risk of the credit crunch being repeated.
"Remutualising Northern Rock would thus deliver to consumers and taxpayers."
The report claims if Northern Rock was a building society it would still be able to repay its debt to the government - but over a longer time frame.
John McFall, chairman of the Treasury select committee, said: "If ever there was a time for an expanded mutual sector, it's now. We desperately need to restore faith in financial services in this country."
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