Written evidence to be reported to the House
Housing and Regeneration Bill
6:15 pm
Paul Stevens: If you read the press releases that Bradford & Bingley put out, the issue was about the best use of capital from its perspective. It felt that it could lend more profitably elsewhere. There is an issue in the sector about the Basel II capital accord and the treatment of capital for social housing lending, whereby the Financial Services Authority has, in my view, arbitrarily imposed a 10 per cent. floor on loss-giving default. This is all getting technical, but in essence it means that lenders, under that capital treatment, have to put more capital aside for such lending, and therefore our returns, which are not great anyway, are reduced.
Not all lenders are able to seek the advanced status under Basel II in order to get the most advantageous capital treatment, and one of them would have been Bradford & Bingley. Most smaller building societies are unable to compete in the market, because they are unable to get the most advanced capital treatment.