I agree. There is a lot of sympathy out there for building societies, but the solution is not necessarily straightforward. That is why I reflected on the comments made by Adrian Coles of the BSA. A risk-based pre-funded scheme would have an impact upon a building society's ability to serve its customers: it might have to either pay a lower rate to savers or charge borrowers a higher rate. Any review of the scheme needs to be carefully thought through, because there is no easy solution. The solutions proposed so far have their failings and will create a set of winners and losers. It is not necessarily about one sector winning and another losing. Some people in the building societies sector may lose out as a consequence, depending on how risk is assessed and quantified.
I am also concerned about the idea, which has been suggested, of moving away from the larger pools for deposit protection to smaller pools, with building societies perhaps picking up the first tranche of a series of losses. Would the building societies be in a position to bear the first loss? How big would that pool be? At what point would the risk be shared with banks and other deposit takers and then, at the next level up, with other financial services institutions? There has been a big debate already about how big the various pools should be and whether they should be tightly defined in relation to particular types of institution or whether they should be broader and what the transfer risk between them is. There is no easy solution to this problem; I wish there were, but I do not believe that there is. I do not think that there is a quick solution, either, as any solution will involve significant change and needs to be properly thought through.
I welcome the FSA's consideration of the matter. It has already embarked on a review of the Financial Services Compensation Scheme to consider how it can introduce seven-day pay-outs or a single customer view and some other important issues. I hope that it looks at this matter carefully, because if there is to be change it is important that we get the right answer—one that is equitable and does not have any unforeseen consequences. We have seen in this crisis that a scheme that was supported by a range of institutions not that long ago is coming under pressure because of a specific set of circumstances. New circumstances may arise in future. Perhaps because of the consolidation of the building society sector, building societies will not be able to swallow their own smoke as they have done in the past. What would be the consequences of that if we moved to smaller pools or a pre-funded scheme, or one based on risk?
This is a complex topic. There is a great deal of sympathy with the views of building societies, but I do not think there is a clear solution—a clear way to tackle the problems—at the moment.