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‘The Paradox of
Success’: The Effect of Growth, Competition and Managerial Self-inter=
est
on Building Society Risk-Taking and Market Structure, c.1880-1939<=
/p>
Luke Samy
Winton Institute for
Monetary History and Nuffield College
University of Oxford
Abstract
 =
;
=
Some schol=
ars
have posited that mutual banks have fewer incentives to engage in excessive
risk-taking than joint-stock banks because of the unique structure of prope=
rty
rights in the mutual firm. This paper uses their theory as a framework to
explain the divergent risk-taking behaviour of building societies between t=
he
pre-war and the inter-war periods, and between large and small societies in=
the
latter period. It is argued in this paper that the low risk-taking behaviour
predicted of mutual financial institutions like building societies can only=
be
expected of small, regional societies which were less exposed to competition
than their larger, city-based counterparts which competed more aggressively=
for
investor funds and mortgage business. In the inter-war period, increased
competition between societies led to levels of risk-taking hitherto unseen =
in
the movement, leading to calls by the movement’s leaders to consolida=
te
the sector into the hands of a few large societies. This process of
consolidation promised to benefit members and to improve the overall effici=
ency
of societies in the movement. The actual experience however shows that these
promises were largely unmet. Rather, it is shown that the only beneficiarie=
s of
firm growth were building society managers, who were able to extract higher=
pay
from empire building.
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