UK’s seven building societies in talks with BoE

| April 20, 2009 | 0 Comments

Crisis talks have been taking place over the weekend between the Bank of England (BoE) and seven of the UK’s building societies.

The move follows last week’s decision by Moody’s to downgrade the credit ratings of several building societies due to concerns they will be hit by losses due to the housing market slump.

The building societies believed to be locked in talks are Chelsea, Yorkshire, Skipton, Coventry, Norwich and Peterborough, Newcastle and Principality and the talks are reported to be centred on the terms of participation in the Special Liquidity Scheme (SLS).

The downgrades threaten to breach the terms of the Government’s SLS and force the societies to return cash to the Bank of England.

According to the BBC, the terms of the scheme have already been breached by Chelsea and it may have to pay back some of the cash or it may have to hand over more of its mortgages to the Bank as collateral.

Meanwhile, the remaining six societies have one month to come to an agreement with Moody’s and the regulators.

The concern is if customers believe the societies to be experiencing problems, then savings are likely to be withdrawn.

However, the downgrade by Moody’s was criticised by the Building Societies Association who said: “All the building societies are fundamentally sound despite the difficult economic environment we are in“.

The UK’s building societies have been relatively unscathed by the banking crisis and have benefited since the collapse of Icelandic banks, Icesave and Kaupthing Edge, and the near collapse of Northern Rock and Bradford & Bingley as savers seek a safe haven.

Tags: , , , , SLS, special liquidity scheme

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