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Return Northern Rock to the mutual sector, says Oxford report
28 Sep 09
The Rt Hon John McFall MP, Chair of the House of Commons Treasury Committee, will today back a report by Oxford professor Jonathan Michie, which urges the government to return the Northern Rock to the mutual sector.
Professor Michie, from the Centre for Mutual and Employee-owned Business, published the report for the Building Societies Association. The report ‘Converting failed financial institutions into mutual organisations’ argues that there are four main arguments behind this approach: bio-diversity, risk appetite, competition and as the best means of repaying the taxpayer.
The Rt Hon John McFall MP will support the report’s call at a Labour Party conference fringe meeting today. In the foreword to the report Mr McFall writes: ‘If ever there was a time for an expanded mutual sector, it's now. We desperately need to restore faith in financial services in this country.The ideas discussed in this publication provide a fertile area for debate and the government should carefully consider the potential for returning Northern Rock to the mutual sector.’
The report argues the more diversified a financial system is in terms of ownership and governance structures and portfolio make-up, the better it is able to weather the strains produced by the normal business cycle. Mutuals, which are not owned by investing institutions, can counter-balance the short-termist pressure of the City. Mutuals also play their part in reducing the concentration of financial sector resources and employment in the City, dispersing wealth and welfare to regional and local economies, the report says.
Professor Jonathan Michie
We must not allow the UK’s financial services sector to return to the ‘business as usual’ model.
Mutuals tend to adopt a lower risk profile because their objective is safety and fair pricing for members rather than being means of producing profit for shareholders, says the report.
Keeping a reformed Northern Rock independent of the big banks is good for competition, says the report. As a mutual committed to its core business, a remutualised Northern Rock will help the government to meet its policy objective of supporting competition and diversity through the maintenance of a strong mutually-owned financial sector.
The report urges the government to realise the best possible value for the taxpayer, through a re-launched and re-mutualised Northern Rock. It says this option would not only return the full value to the taxpayer but also achieve other public policy goals.
Professor Jonathan Michie, Professor of Innovation and Knowledge Exchange at the University of Oxford, said: ‘We must not allow the UK’s financial services sector to return to the ‘business as usual’ model that has proved so costly to the economy and public finances. Already we are seeing a return to the bonus culture. This is fuelled by profits boosted by the increased market power of banks. It is vital that the banks face competition from mutual building societies. That would also reduce the risk of the credit crunch being repeated. Remutualising Northern Rock would thus deliver to consumers and taxpayers.’