In its White Paper entitled Reforming financial markets, the Government announced that it would convene an experts group to advise on strategic issues affecting building societies. The work of the experts group would focus on four main work streams:

  • Governance.
  • Shared operational services.
  • Pooled funding.
  • Capital.

The Government provided an update on the progress made by the experts group in the 2009 Pre-Budget Report and since then work has continued to further explore particular challenges such as access to capital.

The Government has now published a Discussion Paper which is entitled Building Society Capital and related issues. The paper reflects on some of the challenges explored in the experts group relating to capital issues and explores some of the potential ways forward.

The Government is particularly interested in receiving views on the following issues:

  • Prospects for new Core Tier 1 capital instruments including: (i) whether societies need new Core Tier 1 capital instruments; and (ii) any changes that may be required to societies’ governance and investor base as a result.
  • Any modifications to profit participating deferred shares that might help the instrument become more marketable (whether or not it is possible to make sufficient amendments to be suitable for new issuance).
  • The alternative of relying on contingent convertible instruments for new, inorganic capital issuance.
  • The Government’s role in supporting societies to raise capital for stability and growth.
  • Any changes to secondary or primary legislation which could (a) help societies develop new capital instruments and/or (b) ensure that the mutual model, and members’ rights, are safeguarded.
  • Whether instruments similar to any of the capital instruments used in other countries should be adopted in the UK, and if so what legislative and other changes would be needed to do so.
  • How these issues apply to other UK financial mutuals.

The deadline for responding to the Discussion Paper is 22 June 2010.

View Building Society Capital and related issues: a discussion paper, 30 March 2010