Justificación de la metodología del Cuadro de Mando Integral

have not had absolute control over this ratio. It is not

therefore possible to adequately maintain that building

societies have deliberately become more efficient in the

1950's as a matter of policy.

Moreover, the retail banks 'endowment effect* has been d e c r e a s i n g in recent years. Th e increasing i m p o r t a n c e of interest b e a r i n g d e posits at retail banks and the fall in n o n - i n t e r e s t b e a ring sight deposits has eroded the banks' source of tra d i t i o n a l l y c heap retail funds ( n o n - i n t e r e s t bearing sight dep o s i t s are not free as the banks p r o v i d e for the costs of the payments system). Retail d e p o s i t s have

b eco m e i n c r e a s i n g l y e x pensive at the m a r g i n for retail

banks, and the d e c l i n e in the endowment effect affe cts b a n k profitability. It is clear from Table 4.11 that there has been a d e c l i n e in the banks' p roportion of total in come d e r i v e d from their interest margin. Net int e r e s t has fallen from being over 70% of total income in 1982 to o nly 6 4 . 3 % in 1987. In contrast, fee income has grown from 22.6% of total income in 1982 to 28% in 1987. Indeed, non int e r e s t i n c o m e (foreign exchange, fees and concessions, and other) has

g rown from 29.7% in 1982 to 36% in 1987. T h e B a n k of E n g l a n d (1988) points out that this largely results from a

d e l i b e r a t e policy chan g e towards fee income growth,

p a r t i c u l a r l y t h r ough d i v e r s i f i c a t i o n into insurance, a sset m a n a g e m e n t and esta t e agency. Note that i n t e r e s t m a r g i n s have, however, r e m ained relatively stable o v e r 1982 -1987.

Of course, the increasing cost of r e t a i l funds w i l l tend to h ave an affect on b u i lding societies p r o f i t a b i l i t y as well. It m ust be r e m e mbered however, that b u i l d i n g

societies have their own version of the 'endowment effect'. B u ilding s o cieties face a zero cost of r e s e r v e capi tal. T h i s is because, as m u t u a l institutions, they do not h a v e to

Table 4.11

1983 % 1984 I 1985 I 1986 Z 1987 Z

Net Interest 6.54 68.1 7.51 66.6 7.82 67.6 8.34 66.1 8.78 64.3

Foreign Exchange 0.24 2.5 0.26 2#.3 0.28 2.4 0.41 3.3 0.36 2.6

Fees and Commissions 2.49 25.9 2.98 26.4 2.99 2.6 3.30 26.2 3.80 27.8

Other 0.35 3.6 0.52 4.6 0.47 4.1 0.56 3.3 0.71 5.2

Total Income 9.61 11.27 11.56 12.61 13.65

service their capital. Societies thus have free reserves, the level of w h i c h can affect profitability. A s o c i e t y w i t h a large vol u m e of free reserves will tend to be m o r e

p r o f i t a b l e as it will have a relatively hig h p r o p o r t i o n of c a p ital on w h i c h interest does not have to be paid c o m p a r e d w i t h its amount of assets which are non-in c o m e earning. This results in free r e s erve income, w hich provides an e n d o w m e n t effect w hen i n t erest rates are rising. As i n t e r e s t rates rise, s o c i e t i e s will have an endowment effect as i n t e r e s t b e a ring liab i l i t i e s w ill be less than interest be a r i n g assets by the size of the free reserves. This may be a powerful a d v a n t a g e to b u i lding societies d u r i n g p e r i o d s of rising int e r e s t r a t e s . [11]

A further stimulus in the broade n i n g of the similarities of bui l d i n g societies and banks was the

Building S o c i e t i e s Ac t 1986. Under section 34 of the Ac t a building s o c iety or a subsid i a r y of a b u i l d i n g s o c i e t y may provide the ser v i c e s listed in Schedule 8 of the A c t (and the r e v i e w of S c h e d u l e 8 in February 1988). T h e b u i l d i n g societies h ave been gi v e n the powers to u n d e r t a k e i n t e r alia, m oney t r a n s m i s s i o n services, foreign e x c h a n g e

services, p e r s o n a l equity plans, nsecured loans, e s t a t e agency, a d m i n i s t r a t i o n of pension schemes, i n v e s t m e n t services, insurance, and unit trust schemes.

T h e a b i l i t y to d i v e r s i f y into these areas is a p o w e r f u l example of the d e c r e a s i n g d i f f e r e n t i a t i o n b e t w e e n b u i l d i n g societies and banks. Indeed, the Act allows for c o n v e r s i o n from mutu a l status to public limited c o m pany status, w i t h

the p ermission of the members.

Such a society (and at least one - the Abbey National, has taken this action) would be regulated by the B a nk of England, rather than by the building societies

r-ioi

c o m m i s s i o n . 1- J This may prove advantageous in vie w of the degree of reg u l a t o r y asymmetry between retail banks and building societies - particularly concerning w h o l e s a l e funding, unse c u r e d lending, and capital adequacy

requirements. [13] The views of one c o m m e ntator on the i nevitability of c o n v e r g e n c e must be taken into acc ount however,

"The B u ilding Societies Commission (superseding the R e g i s t r a r of Friendly Societies) is a product of this evolut i o n a r y process but is unlikely to be the u l t i m a t e r e g u latory authority. The central co n c l u s i o n of this paper is that the BSC is a transitional p hase b e t w e e n a highly s p e c i a l i s e d set of institutions r e g u l a t e d by the Registry of Friendly Societies, and mutual banks (with full or n e a r - f u l l banking status) r e gulated by the Bank

of England". (Llewellyn, 1988b)

The con s t a n t evolution of the financial sys t e m is in this case likely to lead to both building societies and banks coming under the umbrella of one r e gulator - the B ank of England. In the extreme, there may be nominal or zero difference between the regulations of the two sets of institutions, and between their main operations and activities (notwiths t a n d i n g the possibility of smal ler

building societies adopting specialist or ’niche* s t r a t e g i e s according to their relative strengths and weaknesse s).

4.4 Conclusion

S ection 4.1 ana l y s e d the main factors impi n g i n g upon the degree of c o m p e t i t i o n in the personal sector retail financial market and the main determinants of finan cial innovation. R e - r e g u l a t i o n via a change in mon e t a r y control was shown to be a m ajor catalyst for an increase in

c omp e t i t i o n and financial innovation. The removal of

distorting direct mon e t a r y controls from the retail banks enabled a portfolio re-dist r i b u t i o n towards m o r t g a g e

lending. Th e retail banks entrance into the m o r t g a g e market p r e c ipitated the b r eakdown of the interest rate cartel. The effects on interest rates of the abandonment of the cartel and an increase in comp e t i t i o n have been as w o u l d be

expected from eco n o m i c theory (see Section 4.2). G r e a t e r c o m p e tition for p e rsonal sector retail funds was c o m b i n e d with innovation in the type and variety of d e p osit a c c ounts offered by both building societies and banks. In particular, high interest easy access accounts were introduced, by b oth sets of institutions. One major effect of increased

c ompetition and innovation has been to alter the i n t e r e s t rate policies of the building societies and the banks. Firstly, the a v e rage rate of interest paid on ret a i l funds at building societies and banks has tended to increase. Secondly, the a v e rage rate charged on mortgage loans has also increased. Thirdly, building society interest rates have tended to become less sticky, and now move m o r e in line with other rates of interest. This has resulted in b u i l d i n g society interest rates becoming more flexible and f luid in

relation to competitors rates.

B u i lding Society interest rates becoming mor e m a r k e t related and fluid has meant a greater role for the ‘price* of mortgages in influencing the supply and demand for

mortgage funds. The i mportance of the price of m o r t g a g e s and the greater fluidity of mor t g a g e interest rates for the

effectiveness of monetary control are examined in d e t a i l in Chapter Seven.

There has also been substantial change in the m o r t g a g e policies of the building societies. As would be expected, the higher m o r t g a g e rate charged for larger loans has been competed away. Th e supply of mortgage loans, p r e v i o u s l y rationed, has b e c o m e more responsive to demand cond itions, such chat m o r t g a g e queues h ave disappeared. L a r g e m u l t i p l e s of income have been adv a n c e d for the purchase of houses, as have larger percentages of the sale price (100% a d v a n c e s not being uncommon). This has resulted in substantial

l i beralization of credit conditions to the per s o n a l sector.