Building society

Building society was the name given in 19th century Britain for working men's co-operative savings groups: by pooling savings, members could buy or build their own homes.

1980s

In the 1980s, British banking laws were changed to allow building societies to offer banking services equivalent to normal banks. Building societies, in the classic form, were mutual organisations, jointly owned by those saving and borrowing. From the 1980s onwards, a number of societies, under pressure from members, `demutualised' to become commercial enterprises with shares of stock like any other company: members of the society would get a cash `windfall' - usually several hundred pounds, sometimes more - as their share of the assets of the society. This happened to a number of the larger societies, several of which were bought out by banks after their demutualisation.

Related Topics:
1980s - Bank - Mutual organisation - Demutualise - Shares - Stock - Demutualisation

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A movement arose whereby investors would open a savings account with a mutual building society, thereby getting voting rights in the society, and pressurise for a vote on demutualisation, with the intent of getting a windfall payment as a result. A number of societies' members and managers were very unhappy about such investors, who were termed carpetbaggers, maintaining that as mutual societies, they could supply better and cheaper home loans than the banks and demutualised societies, as they only had to make a profit to cover their operational costs, and had no need to generate an additional profit to return to shareholders.

Related Topics:
Mutual - Demutualisation - Carpetbaggers

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In the end, after a number of large demutualisations, and pressure from carpetbaggers moving from one building society to another to cream off the windfalls, most of the remaining societies modified their rules of membership in the late 1990s. The method usually adopted were membership rules to ensure that anyone newly joining a society would, for the first few years, be unable to get any profit out of a demutualisation. With the chance of a quick profit removed, the demutualisations have slowed considerably, as of December 2001.

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