BSA to put its case for local councils’ billions
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The Building Societies Association is holding talks today with the Local Government Authority to try and convince it to deposit billions of pounds in building societies, Mortgage Strategy understands.
If successful, the capital boost could help kick-start lending among mutuals and safeguard the future of smaller ones.
In recent times local authorities have shied away from investing in financial institutions after being burnt by the collapse of Icelandic banks, with Kent County Council alone losing £50m.
The BSA is also believed to be considering establishing a credit committee to assess smaller non-credit rated mutuals.
Between September 2007 and September 2008 the LGA had more than £11bn invested in mutuals but this has since almost halved to just over £6bn. Instead, a big chunk of the LGA’s money is being in vested in the government’s UK Debt Management Off ice and money market funds.
Local authorities are free to place their money where they wish but official guidelines specify that they should invest funds prudently, with a focus on security and liquidity.
They are also obliged to seek the best home for their cash and opt for firms with high credit ratings.
The Audit Commission published a report - Risk And Return - following the collapse of the Icelandic banks, which states that local authorities should decide whether they have the appetite and capability to manage risk by placing funds with financial institutions or only with the DMO.
The BSA is keeping tight-lipped about its meeting with the LGA.
But a BSA spokeswoman says: “We meet lots of bodies on a regular basis but do not discuss the details of these meetings with the press.”
Stephen Jones, director of finance and performance at the LGA, says: “We have regular meetings with a wide range of stakeholder groups.
“We often discuss matters in which co-ordination and cooperation are vital to ensure money is spent wisely and policies are in place to deliver the best possible services.”
Gross lending by mutuals amounted to £1.49bn in August 2009 compared with £2.66bn in the same month last year, while net lending by mutuals this August was -£655m compared with -£14m in August 2008.
Mortgage approvals in August this year were £1.26m compared with £2.88m in the same month last year.
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