The effect of UK building society conversion on pricing behaviour

The Building Society Act, 1986, allowed British building societies to convert from mutual to plc bank status – quoted on the stock market. Eight mutuals converted in the period 1995–2000. This study examines the pricing behaviour of the converted mutuals and remaining building societies to address the question of whether a change in ownership structure caused managers of the new stock banks to place profit/shareholder concerns ahead of the interests of the customer/owners of mutual building societies. Econometric tests using monthly interest rate data (1995–2001) on deposit products and mortgages confirm that managers began to set prices which would improve profits, at the expense of depositors and mortgagees. Deposit/mortgage rates were found to be permanently lower/higher post-conversion, the converts responded more rapidly to changes in the market rate of interest, and the new banks offered proportionately more rip-offs than the remaining building societies.