Organizational Form, Business Strategies and the Demise of Demutualized Building Societies in the UK, 1987-2007

This paper examines and compares the performance and operating behaviour of demutualized building societies (DBS) over the period of 1987-2007 relative to mutual building societies and major retail banks in the UK. We find significant differences in their operating behaviour over this period and show that the operating behaviour varies with the form of ownership. We also investigate the potential causes of the failure of all DBS in the UK. Our findings show significant changes in the funding and lending strategies of DBS which expose them to higher risk. We also find a strained capital formation and deteriorating capital base of DBS in the post-conversion period. Our results suggest that changes in the business model, diminished capital base and, in part, failing to get all the necessary funding from the wholesale market at the time of the financial crisis of 2007-08 contributed to the demise of a once a successful financial institution in the UK.