Background
A building society is a financial institution found primarily in the UK, established to accept deposits and provide mortgage lending primarily for private housing. These entities play a significant role in the housing finance market and sometimes engage in lending for commercial properties and other financial activities.
Historical Context
Building societies originated in the 18th century as cooperative savings and loans organizations to facilitate home ownership for their members. Over time, they evolved into significant providers of mortgage finance, outpacing other financial institutions in this market. The trend towards converting building societies into conventional banks started in the late 20th century, particularly following policy changes that allowed such transformations.
Definitions and Concepts
Building societies can be defined as mutual organizations that primarily accept deposits to fund mortgage lending, operating under a cooperative model with no external shareholders. They serve their depositing customers, who also become members of the organization.
Major Analytical Frameworks
Classical Economics
Classical economics may consider building societies as essential elements in facilitating capital flow towards home ownership by mobilizing small savings for significant investments in housing.
Neoclassical Economics
Neoclassical economics would analyze building societies in terms of supply and demand for housing finance, the economic incentives provided for savings, and the competitive dynamics between building societies and conventional banks.
Keynesian Economics
Keynesian analysis might focus on the stability provided by building societies in the economy through counter-cyclical lending and savings behaviors. They are likely seen as stabilizers in economic downturns due to their conservative approach to lending.
Marxian Economics
From a Marxian perspective, building societies might be examined in the context of class relations and the roles they play in facilitating property ownership among the working class, or how their conversion into banks impacts the concentration of capital.
Institutional Economics
Institutional economists would find interest in the regulatory frameworks governing building societies, their cooperative structure, and how these institutions’ governance influence their performance and customer welfare.
Behavioral Economics
Behavioral economics might study how the trust and community-focused nature of building societies affect customer decisions on savings and loans, compared to profit-maximizing banks.
Post-Keynesian Economics
Post-Keynesian economics might highlight the role building societies play in mitigating financial instability through conservative lending practices and the support they provide for sustainable home ownership.
Austrian Economics
In Austrian economics, the decentralized and less formal behavior of building societies in their early stages may be of interest, alongside the implications of their cooperative structure on market processes.
Development Economics
From the standpoint of development economics, building societies are highly relevant in addressing housing shortages by channeling savings towards home development and improving living standards through easier access to home financing.
Monetarism
Monetarism would be concerned with the influence of building societies on the money supply, specifically how their activities in mortgage financing impact broader economic activity and monetary policy.
Comparative Analysis
Building societies contrast with commercial banks primarily through their mutual ownership and focus on residential mortgage lending. The process of demutualization has sparked debate on the effectiveness and ethical implications of transforming mutual societies into profit-driven institutions.
Case Studies
- The historical cases of Nationwide Building Society, one of the largest building societies which has remained mutual.
- The significant transformations such as Abbey National and Halifax that demutualized and became conventional retail banks.
Suggested Books for Further Studies
- “The Building Society Movement” by Walter E. Hawkins
- “Nation’s Homes: A Study on Building Societies” by R. Bashford
Related Terms with Definitions
- Demutualization: The process by which a mutual organization, such as a building society, becomes a publicly-traded company.
- Mutual Society: A financial organization owned by its members who contribute to a common fund and receive services.
- Mortgage Lending: The practice of providing loans specifically for the purchase of property.
- Commercial Properties: Buildings or land intended to generate a profit, either from capital gain or rental income.
- Current Account: A type of bank account offering the flexibility of withdrawals and deposits, often including features such as cheques and electronic transfers.
