Building Society

A financial institution owned by its members rather than by shareholders, set up originally on the concept that it can enable its members to buy their own homes using other members’ deposits. The term building society first arose in the 19th century, in the United Kingdom, from co-operative savings groups: by pooling savings, usually in terminating deposits, members could buy or build their own homes. From their origins building societies grew rapidly and at their peak almost every town in the country had its own building society.

The numbers of building societies in the country did start to decrease however as many of them merged in an attempt to keep pace with and maintain competition with the Banks. This culminated with the passing of the Building Society Act 1986. This allowed Building Societies to demutualise if over 75% of their members agreed to do so and become Ltd companies. In essence this allowed them to effectively become banks in their own right and trade shares in their company. This was very popular at the start of the 1990s as members would receive a windfall for their stake in the building society. This also lead to an increase in old building societies being bought by banks, for example Halifax being bought by the Bank Of Scotland.

Despite this there do remain a number of active building societies in existence as many people prefer the relative security they provide with mutual ownership as seen with the recent banking crisis as not being ltd means they are not as susceptible to market crashes.

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