By Johnston Birchall
Mutuality has develop into an issue of dialogue lately for a complete variety of lecturers and social commentators. The 'demutualisation' of banks and construction societies has been partnered by way of the belief of a 'new mutualism' , forming a collection of social values and ideology, and this assortment seems to be on the manifestations of those developments and the consequences for the longer term.
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Additional info for The New Mutualism in Public Policy (Routledge Studies in Business Organization and Networks, 15,)
Consistent with this explanation, we find that stock thrifts are both more efficient and more likely to remain solvent than are mutuals when we control for the lines of business emphasised. Moreover, the lines of business that stock firms tended to pursue were negatively correlated with efficiency and solvency. The conclusion arrived at by Hermalin and Wallace, therefore, is that stock thrifts are inherently more efficient than mutuals with respect to the standard agency problems, but that the asset substitution problem results in an additional agency problem which leads stocks to pursue lines of business inconsistent with efficient operations and future solvency.
For these basic reasons there is no necessity to have a specialist supplier of capital independently of the customers. Since external suppliers of capital to plc institutions need to be remunerated (in the form of a required rate of return on equity), the absence of external shareholders in mutuals can be deemed to be an inherent efficiency advantage of financial mutuals in the sense that, other things being equal, they should be able to operate on lower margins in respect of the financial intermediation process.
2 translates a range of required ROEs into implied required ROAs, again assuming a required minimum equity to assets ratio of 4 per cent (which would be appropriate for the mortgage market). 1 we need some estimate of the cost of capital (required rate of return on equity) for plc banks. 2) and quarterly data over the recent period 1991–96. 1 per cent. Estimates of Betas for UK banks in recent years have tended to be at or slightly above unity. 1 per cent. 64 per cent. 1, it is clear that mutual building societies would face a margin advantage vis-a`-vis plc banks at all growth rates up to 18 per cent per annum.