The Daily Mail reported under the proposals the Treasury would allow mutuals to raise more of their funding from non-members – or the money markets.
Currently the limit is 50% but because wholesale funding costs are so high, mutuals only raise around 25% from the money markets.
The government said it hoped the proposals would make mutuals better able to lend to SMEs.
The Treasury consultation paper said: “We want to continue this vital role, expanding carefully over time into new areas such as SME banking.
“The Government’s commitment to review and revise building society legislation to support these aims – whilst maintaining the low risk approach that has served our members well throughout the crisis – is a positive step forward.”
The Treasury also said building society legislation would have the same ring-fencing requirements outlined by the Independent Commission on Banking to ensure a level playing field.
And it said it will amend the Building Societies Act to avoid confusing mutuals with two separate pieces of legislation.
Building up protective cash buffers will also apply to building societies in the same way as to banks of a similar profile, the Treasury added.
