These, coupled with the fact that societies don't depend on short-term funding like the banks do, will see them ride out the current market storm unscathed.
Speaking at a conference in the East Midlands, Dean Carter, head of compliance and risk at Nottingham Buillding Society, said: “Like many building societies, The Nottingham is a prudent organisation that uses only a modest amount of money borrowed from other banks and lending institutions in its day-to-day operations.
“Yes, we have access to wholesale funds. But neither The Nottingham, nor other building societies, are exposed to large-scale borrowing from this source because of the fundamental risks such financing represents.
“Typically, this type of funding accounts for less than 20 per cent of our overall borrowing. We would never push wholesale funding to the levels of Northern Rock did, which went off the scale at 75 per cent - even if we could.
“As a result of adopting a prudent approach to business, we don’t experience cash flow problems. Indeed, building societies have experienced record savings figures post Northern Rock, as more people recognise the security and reliability of mutual organisations.”
He concluded: “It’s very easy to lay blame solely at the door of Northern Rock. But the reality is they operated within the framework and limits allowed. More prudent organisations would not have pushed so far. And the bigger, more traditional banks have the size and diversity to cope with funding problems.
“Maybe an important lesson learned is that Northern Rock did not have other traditional banking areas set up to support a heavily stressed part of its business. Perhaps a mortgage bank - that has come from the building society arena and not diversified into other traditional banking areas - should be regulated more like a building society than a major clearing bank.”
