Could a new Building Society work be established here in Ireland?

[The_Banker]

Ok, here is a question right out of left field.

I was thinking about this over Christmas. If a bunch of like minded individuals decided to start up a Mutual Building Society then could it be done in today’s Ireland? As far as I know there are no mutual building societies left here. All have become banks or have been taken over by banks.

As the mortgage market is dead and people are stuck in houses and cant move due to the fact that banks aren’t lending (despite saying they are) surely it is time for like minded individuals to come together and start up a society?
Young people are still getting married and still require some place to live

I am sure it was done a lot easier in the past when there wasn’t I.T systems needed and compliance wasn’t as strict as it is now and societies evolved with technology and regulations but surely it can happen if enough people want it.
I am a member of FORAS (friends of the rebel army society) which was set up as a friendly society to run a LOI soccer club here in Cork. Everyone contributes time and energy on a voluntary basis to keep the show on the road. Very successfully too I might add.

Could something similar be done here in Ireland for a Building Society? Starting small with a few members there is no reason why any (or indeed every) county in Ireland couldn’t have it own building society. There are lots of small one office societies in the UK providing mortgages to people who require them.

People can sit around and wait for the banks of the old order to start lending again or they can do something about it.
I would be very interested in peoples opinions.

 

[Brendan Burgess]

Hi Banker

The setting up of a new Building Society is dealt with by the Building Societies Act 1989. The big stumbling block would be that you would need to get approval from the Central Bank, who would be very slow to approve it.

In the past, they were set up by a group of like minded people e.g. teachers set up the EBS, Civil Servants set up the ICS BS. It's possible that these groups might support the setting up of a Building Society.

The big problem would be in attracting deposits.Depositors are nervous at the moment and would be unlikely to put money on deposit in a small, new institution.

In the old days, there was a good margin between lending rates and deposit rates - there isn't anymore as banks compete for deposits. So you would have to pay at least 3% for deposits. So you would have to lend at 4%, at the very least. I think that EBS is charging 4.25% at the moment. The existing mortgage lenders are funding a good part of their book through the ECB at 1%. I doubt if you would get funding at 1%.

I think that lending to buy property is risky at the moment. If someone doesn't pay, the legal and political systems do not make it easy for the lenders to recover their security.

It was a mistake by the current government to force the EBS into AIB. I have seen no rationale for it at all. If they had recapitalised the EBS, it would return to profitabilty in time and would offer extra competition in the market.

Having said all that, the idea of a mutual lender is a good one. If you started the process of setting one up now, the market could well have recovered some element of normality before you are ready to take deposits.

Could the Credit Unions get together and support a mutual? They would have the funding for it. Their members would probably deposit with it.