BoE engages building societies over credit rating downgrades

by Gill Montia

Story link: BoE engages building societies over credit rating downgrades

The Bank of England has been in talks with seven UK building societies over the weekend.

The news follows last week’s decision by Moody’s to downgrade the credit ratings of Nationwide, Chelsea, West Bromwich, Coventry, Newcastle, Norwich & Peterborough, Principality, Skipton, Yorkshire and Britannia building societies.

According to reports, Chelsea, Yorkshire, Skipton, Coventry, Norwich and Peterborough, Newcastle and Principality are involved in the discussions with the Bank, which centre on the terms of participation in the Special Liquidity Scheme (SLS).

The scheme has allowed UK mortgage lenders to swap difficult to trade assets, such as mortgage-backed securities, for Treasury bills.

However, securities swapped are credit rated and Moody’s downgrade therefore demands a second look at the assets lodged with the scheme.

In related news, a whistleblower whose cause has been taken up by Liberal Democrat Treasury spokesman, Vince Cable, last week claimed that the Financial Services Authority (FSA) was warned that some of the UK’s mutuals were carrying riskier loans than realised.

According to the anonymous FSA insider, societies have exposed themselves to areas of risky specialised lending when their executives had no real grasp of securitisation of structured finance.