Banking Bill

I speak in support of new clause 2, which I tabled, on the reversion of rescued former building societies to mutual status. It is supported by my hon. Friends the Members for West Bromwich, West (Mr. Bailey) and for Stroud (Mr. Drew). In the immediate aftermath of the American civil war, northern Republicans schlepped en masse to the defeated south, where they joined the local Republican parties. The newcomers quickly took control in several former Confederate states, dragging their political machines into line with their cousins in the north. Those transient opportunists had arrived in the south with their belongings carried in holdalls fashioned from old carpets, giving rise to their nickname of carpetbaggers. The name persists in use today. Sadly, the story of the demutualisation of building societies gave rise to its own breed of carpetbaggers, oily opportunists whose mercenary profiteering would lead some former building societies to abandon their traditional strengths and sow the seeds of their recent and current vulnerability. Every one of the building societies that demutualised and listed on the stock exchange—from Abbey National in 1989 to Bradford & Bingley in 2000—has either failed or had to be rescued. Included among them is the largest of all—the Halifax building society. I have been a depositor with the Halifax all my working life, from being a paper boy onwards, and I have been a Halifax mortgage holder all my married life as well. In the long, hot summer of 1997, 75 per cent. of the 7 million members of the Halifax building society voted on demutualisation: 97 per cent. voted for and a glorious 3 per cent.—including David Taylor of LE67 2QP—voted against. One gets no credit for saying, ““I told you so,”” but I told you so. The wave of deregulation that swept across the financial sector inflated the status and salaries of corporate managers. It gifted money for nothing to speculative investors. It fed into, and fed off, the boom in housing ownership, with its corollary—mortgages. Borrowers lost out as well. The building societies' ability to offer cheaper loans to their customers disappeared, as they became virtually indistinguishable from banks. The communities that they served lost the familiar services that they had relied on. The ethical grounding of member-oriented services evaporated. We had come to the high point of the Thatcher era—the deregulation introduced by the UK's Building Societies Act 1986 paved the way for banks and building societies to go head to head, competing in the same space for the same customers and using the same products. By converting into banks, the former building societies gained greater access to wholesale borrowing, new types of investors and the unrestricted use of financial instruments such as securitisation. The collapse of Northern Rock and Bradford & Bingley can be interpreted in the light of their access to those new sources of funding, and to their uses of financial instruments that were either unavailable or antithetical to the mutual societies. The 1986 Act removed the Chinese walls between the two kinds of financial institution. In offering demutualisation, it created the means to sell out long-term security for short-term profit. In 2001, Cambridge university's Centre for Business Research produced a working paper on the topic, and it quoted a senior manager of the Halifax before demutualisation, who said:"““All arguments for conversion are fairly arcane as far as our members are concerned. The single argument that will convince them is the release-of-value argument.””"