Since the wave of demutalisations, the building societies have declined as an element in the UK financial sector. Credit unions have sprung up in some places, but they have been too small and local to do much. They have not been able to expand enough to avoid those on low incomes falling prey to loan sharks or falling into credit card debt.
It strikes me that - if the state does not want to retain control of Northern Rock and Bradford and Bingley in the long-term - then, when the markets are calmer, it should perhaps transform them back into building societies. When they were building societies, they did not engage in as many reckless practices as they did after demutualisation. If remutualised, perhaps they could go back to provide local banking services for people in poorer and middle-income communities. This could provide people with cheaper ways of getting credit than from loan sharks and would also make it easier for people to find somewhere convenient to save money.
The lack of a need to make returns for shareholders will hopefully mean that they will not follow the kind of reckless behaviour that has been displayed in the past. Instead, the aim should be to make a small operating surplus to enable expansion and to enable reserves to be built up. In addition, the role of regulation should be to prevent such reckless lending should it crop up once more and to control the dangers of fraud and mismanagement.
Of course, if they are transformed from nationalised banks into mutual building societies, the state would be gifting capital to them. In order to pay for this, perhaps these entities could pay the government back - over the long-term - for the money that has been invested in them since nationalisation. The government has injected £3bn or more in capital into Northern Rock. It should gradually pay this back to the taxpayer.
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