A Building Society is traditionally a financial institution that accepts deposits, upon which it pays interest, and makes loans for house purchases or house improvements secured by mortgages. Originating from the Friendly Society movement in the late 17th century, these institutions were initially non-profit-making with mutual status.
Historical Context
Origins and Development
Building societies emerged in the United Kingdom during the 18th century as mutual organizations. The first known building society, Ketley’s Building Society, was founded in 1775 in Birmingham. The core purpose was to enable members to pool resources to fund house purchases or improvements. This mutual model proliferated in the 19th and early 20th centuries.
Global Expansion
Building societies or similar entities exist in several countries, including:
- UK
- Australia
- South Africa
- Ireland
- New Zealand
- USA (Savings and Loan Associations)
Legislative Changes
The Building Societies Act 1986 in the UK significantly widened the range of services they could offer, bringing them into competition with commercial banks.
Types/Categories of Services
Traditional Services
- Savings Accounts: Deposits with interest payments.
- Mortgages: Loans secured by real estate.
Modern Banking Services
- Cheque Accounts: Accounts that pay interest on all credit balances.
- Cash and Credit Cards: Providing cards for cash withdrawals and credit.
- Loans: Various personal and business loans.
- Money Transmission: Facilitating payments and transfers.
- Foreign Exchange: Currency exchange services.
- Valuation and Conveyancing: Property valuation and legal conveyance services.
Chart of Services
graph TD
A[Savings Accounts] --> B[Mortgages]
A --> C[Cheque Accounts]
A --> D[Cash and Credit Cards]
A --> E[Loans]
A --> F[Money Transmission]
A --> G[Foreign Exchange]
A --> H[Valuation and Conveyancing]
Key Events and Evolution
- 1775: Establishment of Ketley’s Building Society in Birmingham.
- 1986: Building Societies Act enables competition with commercial banks.
- 1990s: Many building societies convert to public limited companies (PLC) and merge for national presence.
- Present: Regulated by the Financial Conduct Authority in the UK.
Detailed Explanations
Mutual Status vs. Public Limited Companies
- Mutual Status: Owned by members, non-profit-making.
- PLC Conversion: Owned by shareholders, profit-driven.
Regulatory Framework
Building societies in the UK are regulated by the Financial Conduct Authority (FCA), ensuring compliance with financial regulations and protecting customers’ interests.
Importance and Applicability
Building societies play a crucial role in:
- Promoting home ownership.
- Providing competitive financial services.
- Supporting community-based financial initiatives.
Examples and Considerations
- Nationwide Building Society: The largest building society in the UK.
- Principality Building Society: Operating primarily in Wales.
Related Terms
- Mutual Society: A member-owned organization.
- Savings and Loan Association: US equivalent of building societies.
- Credit Union: Member-owned financial cooperative.
Comparisons
Building Society vs. Commercial Bank
- Ownership: Members vs. Shareholders.
- Profit Motive: Non-profit (originally) vs. Profit-driven.
- Regulation: FCA vs. Bank of England.
Interesting Facts
- Community Focus: Early building societies often had strong local ties and community focus.
- Demutualization Trend: Many building societies in the 1990s chose to convert to PLCs, seeking growth opportunities.
Inspirational Stories
The Nationwide Journey
From a local building society, Nationwide evolved to become the largest in the UK, maintaining mutual status and offering competitive services against large commercial banks.
Famous Quotes
“A building society gives ordinary people a chance to own their homes and secure their future.” – Anonymous
Proverbs and Clichés
- “A penny saved is a penny earned.”
- “Home is where the heart is.”
Jargon and Slang
- Mutualization: Converting to mutual status.
- Demutualization: Converting from mutual to a public limited company.
FAQs
What is a building society?
How is a building society different from a bank?
What services do building societies offer today?
References
- Financial Conduct Authority. (2023). Regulation of Building Societies.
- Building Societies Association. (2022). The Role and History of Building Societies.
- Nationwide. (2023). History and Services of Nationwide Building Society.
Summary
Building societies have evolved significantly since their inception in the late 17th century. From member-owned, non-profit institutions focused on housing finance, they have expanded their services and, in many cases, converted to profit-making public limited companies. Today, they stand as versatile financial institutions, regulated by the Financial Conduct Authority, and continue to play an essential role in promoting home ownership and providing competitive banking services.
This comprehensive exploration highlights the historical context, services, regulatory environment, and importance of building societies in the modern financial landscape.
