NINO STAFFA pay for certain priviledges which gives them great advantages over other financial institutions. Firstly, they pay~ composite rate of tax on deposits which is less than the standard or basic rate of tax. This enables them to offer a higher rate of interest to their depositors and charge a lower rate of interest on mortgages. Secondly, the societies are exempt from all direct credit restriction measures. As « mutual organisations » the societies have « trustee status». They are technically « non-profit making bodies» whose share investors are not « creditors » ( the legal status of bank depositors) but «members». However, these « shareholders» have no claim on any dividends which might result from surpluses. Whilst « non-profit making » bodies may be their legal status they must still cover their costs by charges to borrowers. They therefore seek assurance that the advances will be repaid and so they make what they regard as « a business-like assessment of the creditwothiness of a potential borrower» (42). Another complication of the process by which the societies' policies are decided is that, like other financial institutions, they have to present balance sheets, and they have certain balance sheet constraints to observe. All societies have to maintain certain « reserve ratios » and « liquidity ratios ». To maintain a given « reserve ratio», when a society's assets are increasing the society must put fresh amounts into the reserves each year. « The relation between the reserve ratio (i.e. reserves as a proportion of assets), the surplus of income over current expenditure expressed as a ratio to total assets, and the rate of growth of total assets can be expressed in terms of a formula: 100 s g = r-s where g is the rate of growth of assets (percentages) s is the surplus, expressed as a percentage of assets, r is the reserve ratio (as a percentage)» (43). It is not surprising, therefore, to find that building societies have become primarily« investor oriented» so that investment 26 (42) HMSO op. cit., part. II, p. 97. (43) HMSO op. cit., part. II, 99.
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