Building Societies v RMBS 
Tuesday, September 1, 2009, 06:19 PM
Posted by Richard Senior
Someone recently raised with me the difference between a building society and an RMBS. Surely, they said, RMBS can't be as safe as a building society. I raised a few points:
-Both a building society and RMBS are , or should be, simple: in both cases a bunch of residential mortgages funded by senior debt/"shares" plus subordinated debt/"reserves"
-RMBS is match funded; the liabilities match the assets. You can't have a run a la Northern Rock on an RMBS;
-If you have thousands to invest, a building society is safer-HM Govt guarantees you up to £50k. If you have millions to invest, a AAA RMBS is probably a lot safer than a much lower-rated building society;
-BUT the only liquidity for RMBS is a market sale, whilst deposits can be withdrawn at par at any time-as long as the society has access to cash!
-RMBS yields significantly more at present than building society paper;
-An RMBS is "brain dead"-there is no possibility of a bored management looking for fun and yields by branching out into areas where they have no expertise, such as commercial property (Dunfermline) or buy-to-let (Bradford & Bingley).


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