Accounting for Dominance and Submission: Disciplining Building Societies with Accounting-Based Regulation, Circa 1960

Abstract

This paper examines how accounting-based regulation modified the operation of one type of participant in British retail finance. Specifically, the House Purchase and Housing Act, 1959 and Building Societies Act, 1960 gave the Registrar of Friendly Societies new powers of intervention and these were used to discipline building societies revealing inadequate use of their funds. Although only a tiny fraction of existing societies were ultimately sanctioned, they all observed important deviations from specified accounting-based criteria that were generally recognized as financially sound within the industry. Intervention, however, was also motivated by two other factors: the successful lobbying by the Building Society Association to discipline non-members; and attempts by the Registrar to stop property developers from abusing moribund London-based societies. Results provide enough evidence to suggest that other studies' assessment that managers of British retail financial intermediaries disregarded accounting information in executive decisions need to be revised in light of the fact that the accounting control of building societies was supplemented by the disciplinary power granted to state regulators (as represented by the Treasury and the Registrar of Friendly Societies).