Building Society

Building Society Financial Institution Mortgages Housing Loans Mutual Status Financial Services Commercial Banking Financial Regulation
A financial institution traditionally engaged in accepting deposits and making loans for house purchases or improvements, predominantly found in the UK, Australia, South Africa, Ireland, and New Zealand.
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What is a Building Society?

A building society is a financial institution that primarily focuses on providing savings and mortgage lending services to its members. Originating from the Friendly Society movement in the late 17th century, these societies have typically operated on a mutual basis, meaning they are owned by their members rather than external shareholders. This mutual status allowed them to operate as non-profit-making entities.

Key Features of Building Societies

  • Accepting Deposits: Similar to commercial banks, building societies accept deposits from members, on which they pay interest.
  • Mortgage Lending: They offer loans secured by mortgages for house purchases and improvements.
  • Mutual Ownership: Traditionally non-profit-making and owned by members.
  • Range of Services: Post the Building Societies Act 1986 in the UK, they now offer a wide range of services including cheque accounts, credit cards, cash cards, loans, money transmission, foreign exchange, and valuation and conveyancing services.

Examples of Building Societies

  1. Nationwide Building Society (UK): The largest building society in the world, providing a range of financial services.
  2. Yorkshire Building Society (UK): Offers mortgages, savings, insurance, and financial planning.
  3. Permanent TSB (Ireland): Offers mortgages, savings, and a wide range of financial services.

Frequently Asked Questions (FAQs)

Q1: What is the difference between a building society and a commercial bank?

A1: Traditionally, a building society primarily focuses on savings and mortgage lending and operates on a mutual ownership basis, whereas a commercial bank provides a wider range of financial services and is owned by its shareholders. However, the distinction has blurred over time with many building societies offering similar services to banks.

Q2: How does mutual status benefit building society members?

A2: Mutual status often means that profits are reinvested into the society or used to offer better rates and services to members, rather than being distributed to external shareholders as dividends.

Q3: Can building societies offer the same services as banks?

A3: Yes, especially after legislative changes such as the Building Societies Act 1986 in the UK, building societies can offer numerous financial services similar to those provided by banks.

  • Mortgage: A loan secured by the collateral of specified real estate property.
  • Friendly Society: A mutual association for the purpose of providing insurance or financial assistance.
  • Public Limited Company (PLC): A company that offers its securities for sale to the general public with shareholders.
  • Savings and Loan Association: US-based financial institutions that accept savings deposits and provide mortgage and other loans.
  • Financial Conduct Authority (FCA): A regulatory body overseeing financial markets and services in the UK.

Online References

Suggested Books for Further Studies

  1. “Building Societies in the Commercial World” by Peter Hopkinson
  2. “Understanding Financial Institutions: Savings & Loan and Building Societies” by John R. Thompson
  3. “The Evolution of Financial Institutions and Markets” by Peter Tufano

Accounting Basics: “Building Society” Fundamentals Quiz

### What is the primary purpose of a building society? - [x] Providing savings and mortgage lending services. - [ ] Offering investment banking services. - [ ] Managing large hedge funds. - [ ] Providing insurance products only. > **Explanation:** The primary purpose of a building society is to provide savings and mortgage lending services to its members. ### How are building societies traditionally owned? - [x] Owned by their members. - [ ] Owned by their shareholders. - [ ] Owned by the government. - [ ] Owned by private equity firms. > **Explanation:** Traditionally, building societies are mutual organizations owned by their members. ### What significant act allowed UK building societies to expand their range of services? - [x] Building Societies Act 1986 - [ ] Financial Services Act 2006 - [ ] Banking Reform Act 2010 - [ ] Mortgage Lending Regulation Act 1999 > **Explanation:** The Building Societies Act 1986 allowed UK building societies to provide a wider range of services, enabling competitiveness with commercial banks. ### Which service was NOT traditionally offered by building societies before legislative changes? - [ ] Mortgage lending. - [ ] Savings accounts. - [x] Credit cards. - [ ] Accepting deposits. > **Explanation:** Traditionally, building societies did not offer credit cards until legislative changes like the Building Societies Act 1986. ### What country does NOT have building societies? - [ ] UK - [x] Canada - [ ] Australia - [ ] Ireland > **Explanation:** Building societies are found in the UK, Australia, South Africa, Ireland, and New Zealand, but not in Canada. ### What happens to the ownership structure of a building society when it becomes a public limited company? - [ ] It remains owned by members. - [x] It becomes owned by shareholders. - [ ] It is owned by the government. - [ ] It becomes a private entity. > **Explanation:** When a building society becomes a public limited company, it transitions from mutual ownership by members to ownership by shareholders. ### What is one major similarity between building societies and commercial banks today? - [ ] Both are only non-profit organizations. - [x] Both offer a similar range of financial services. - [ ] Both are owned by their members. - [ ] Both cannot issue credit cards. > **Explanation:** Today, building societies and commercial banks offer a similar range of financial services due to regulatory changes. ### Why have many building societies merged over time? - [ ] To reduce operational costs drastically. - [x] To provide a national network and compete with large banks. - [ ] To avoid legislative changes. - [ ] To diminish their range of services. > **Explanation:** Many building societies have merged to provide a national network that can compete effectively with large banks. ### Who regulates building societies in the UK? - [x] Financial Conduct Authority (FCA) - [ ] Bank of England - [ ] Prudential Regulation Authority (PRA) - [ ] HM Treasury > **Explanation:** The Financial Conduct Authority (FCA) regulates building societies in the UK. ### What term describes a financial institution similar to building societies in the USA? - [x] Savings and loan association - [ ] Credit union - [ ] Commercial bank - [ ] Investment fund > **Explanation:** In the USA, institutions similar in operation to building societies are known as savings and loan associations.

Thank you for exploring the comprehensive world of building societies and for testing your knowledge through our quiz!

Tuesday, August 6, 2024
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Central Bank January 1, 1
Commercial Bank January 1, 1
Credit Union January 1, 1
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Financial Institution January 1, 1
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Investment Advisers Act of 1940 January 1, 1
Markets in Financial Instruments Directive (MiFID) January 1, 1
Prudential Regulation Authority (PRA) January 1, 1
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