Capital proposals must cater for mutuals

He also noted that societies are ‘socially useful' with a profound benefit to local communities up and down the country.

He said: "The Tripartite has made it very clear that they want to see a greater quantity and a better quality of capital across the whole of the financial services sector. And this is where the building society sector has a major issue. We have the strongest and purest levels of capital in the industry but our ability to manufacture higher levels of capital is limited without compromising our mutual status."

Mr Beale questioned the FSA's view that PIBS - a form of building society capital - should be regarded as Tier 1 capital, rather than core Tier 1 - despite legal and practical arguments to the contrary put forward by the BSA. "I would encourage the FSA in particular not to back us into a corner by an over rigid or super equivalent interpretation of the capital requirements directive. Such a policy is, in execution if not intention, anti mutual and we are determined to challenge it."

Against a backdrop of unique and highly challenging economic and market conditions, Mr Beale noted that demand for retail deposits from institutions has never been greater as institutions refinance their balance sheet in the retail rather than the wholesale market. He said: "The net consequence is that the margin between savings rates and mortgage rates has been eroded... but the demand for retail deposits is so intense that rates have been pushed up in some cases to uneconomic levels. And this is often by institutions that carry real or implied unlimited guarantees because of their full or part state ownership."

On the subject of emerging regulation, Mr Beale warned that the effect of regulatory change is becoming increasingly more difficult to interpret. Emerging regulation will come at a cost, which will ultimately have to be borne by the consumer in terms of more expensive products, he said. And there is a very real danger that the law of unintended consequences will prevail.

He went on to say: "Building societies are of profound benefit to local communities throughout the UK and society generally... so building societies are far from being socially useless; in fact they are the exact opposite which is why it is so important that the endorsement in the White Paper of a healthy and vibrant building society sector must be preserved and built upon."