Banks are financial institutions that we are all aware of. In fact, all of us have experience of having an account with a bank and availing its services. However, not many people know about building societies that serve similar functions like banks and are owned by members of the society. Despite not being a bank, a building society has many financial services like lending, mortgage to its members. Though the number of such building societies is dwindling fast, UK is one country where one can still find a number of such societies accepting deposits and lending money to members just like other private and government banks. What then are the differences between banks and building societies? Let us take a closer look.
It is surprising that in this modern age, a country like UK still boasts of 48 building societies that have in total reserves of more than pound 360 billion. This is when a financial crisis in 2007 coupled with global recession in 2008-2009 resulted in several mergers and closures causing fall in numbers of building societies, which happened to be 59 then. In fact, there are very few countries like UK that have building societies still functioning like banks.
We know that banks are companies having a presence in stock markets. It means that there are shareholders that are owners of these banks. Having owners, it is only natural for these banks to work to generate profits for them. In a sharp contrast, building societies are organizations that are formed by its members and perform financial functions only for the needs and requirements of its members. There are no owners, and this is one fact that has meant higher interest rates for depositors and lower interest rates for borrowers in building societies.
Those having accounts in building societies are members having voting rights on issues that affect members financially. Anyone can become a member of a building society, and it is not necessary to look in your own area as it is possible to operate an account through internet, mail, and telephone in a building society in any area of the country. Building societies are democratic mutual institutions, and each member has one vote irrespective of the amount of money held by him in the society. Another major difference between banks and building societies lies in the fact that there is no cap on banks arranging money from the market, whereas building societies cannot raise more than 50% of their funds through wholesale money markets. In practice, this limit is kept at 30%.
Of late, there has been a lot of talk of de-mutualization, which means allowing a building society to turn itself into a bank to survive in these hard economic times.
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What is the difference between Bank and Building Society • Banks are companies with share market listings, and work for profit for their shareholders. • Building societies are mutual organizations with members who have voting rights. • Building societies have been providing banking facilities like loans, deposits, and mortgage loans. • Building societies have been more competitive than banks as they do not have to make profits. • With some societies reporting losses, government has allowed building societies to convert into banks.
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