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They say a week is a long time in politics but it feels even longer in financial services right now. The rate at which events have unfolded, and are still unfolding, is just breathtaking. Just more than a week ago we saw the last of the demutualised institutions lose its independence when Bradford & Bingley was dismantled, its mortgage book nationalised and its savings book and branch network sold to Abbey National.

While clearly the Building Societies Association never supported demutualisation, it is extremely sad that another private institution has found it impossible to survive the credit crunch and has needed government support.

You might think the BSA would be rubbing its hands together with glee as the last converter ‘disappears’, but crowing after the event is easy to do and hindsight is a wonderful thing.

These are clearly serious times and what has happened to B&B, Northern Rock and Halifax damages confidence in the entire banking industry – so we are certainly not gloating.

What I can say is that the current situation emphasises the important role of building societies in providing simple, straightforward savings and mortgage products.

So why did they demutualise in the first place? There were great benefits to becoming a Plc, argued the demutualising societies. They would have greater access to the capital they needed, be better able to participate in restructuring and, initially, have wider powers than banks.

The real winners however, were the directors of the demutualised institutions. An academic study from the Kent Business School, conducted in 2005 showed that there was a significant difference in the determinants of executive compensation in converted and mutual societies.

It concluded, somewhat cautiously, that: “Overall, the possibility that the flotation of the mutual societies was inspired by the private interests of executives cannot be ruled out.”

The study compared the average remuneration of executives at four demutualised societies to that of 15 building societies that remained mutual. This found that in the period from 1993 to 2000, executive remuneration at demutualised societies increased by 293 per cent, compared to 65 per cent at building societies.

The losers were those who received their “free” cash payments, in other words the consumers who saw their communities left without branches as demutualised institutions reduced their branch network by nearly 25 per cent between 1995 and 2000. Increasingly more profit had to be extracted from consumers as on average Plcs pay 35 per cent to 55 per cent of profits as dividends, which are not re-invested in the business, unlike building societies.

By the end of the 1990s, many commentators were very much writing off the building society sector as a goner. Fast forward to 2008, and while we are not claiming to be immune to the current economic situation, we have come a long way since the demutualisations and arguably, the sector is generally in good shape and has coped well with the difficult situation in the housing and financial markets.

So, where did it all go wrong? In 2006, in its evidence to the All Party Group for Building Societies and Financial Mutuals’ inquiry into demutualisation, Northern Rock insisted that:

“Its success over the past eight years would not have been possible under the old mutual model. By being able to access external capital – 75 per cent of which was then raised abroad – it could grow quickly and therefore keep unit costs down.”

Regrettably, it was also this business model which ultimately led to its downfall. Its heavy reliance on wholesale funding when the money markets dried up proved too much. Northern Rock was right about one thing, though: this would not have been possible under the building society model.

It seems that chasing growth and diversification proved too much for many of the demutualised – perhaps they should have ‘stuck to the knitting’ – but like I said earlier, hindsight is a wonderful thing.

A further key difference between building societies and the banks is their culture. On demutualisation, the focus changed dramatically from customers to profit. This is well illustrated by a quotation given by John Stewart, then chief executive of Woolwich, to the Financial Times on 19 February 1998, a few months after demutualisation -

He said: “Culture has been the biggest change at the Woolwich over the last year to 18 months. A building society culture is wonderful in terms of customer care, but it is not particularly good at identifying where the value is in the business. We need a different type of person in the future.”

To paraphrase, Mr Stewart was saying that the new Woolwich bank needed more people who were not interested in customer care. This point is emphasised by the reaction of a former senior Barclays manager who moved to the mutual sector as chief executive of friendly society Liverpool Victoria, now LV=.

He said to the Daily Telegraph on 21 August 2006, just after joining: “The key difference for me is there is genuine warmth for the customer and business. There is more of a family feel. People feel they are there to do the right thing. That’s part of the culture.”

He had presumably noticed little “genuine warmth for the customer” when he was working for Barclays.

And what now for the building society sector? We have recently seen the merger announcements from Nationwide, Derbyshire and Cheshire building societies – these mergers show how differently mutuals handle potential problems.

The mergers are a result of prudent and pre-emptive actions taken independently by the boards of the Derbyshire and Cheshire in the best interests of their members in the current uncertain economic environment.

They do not involve any need for government guarantees, or tax-payer funded liabilities – as was the case for Northern Rock. They illustrate the strength of the building society sector and its ability to act swiftly to pre-empt potential difficulties – in short, we’ve looked after our own.

In many ways, societies are stronger and more distinctive than they were through the demutualisations. The changes served as a wake-up call in terms of corporate governance, in understanding their mutual status and how this can best be used to members’ advantage. Today we see societies with narrower margins – reflecting better rates of interest for members, better service and a much greater responsiveness to members.

Regardless of the size of the society they share the common belief that mutuality is the best, and only, way forward. Being mutual means building societies have no shareholders, and in turn, means there is only one priority for building societies – their members.

Adrian Coles is director general of the Building Societies Association