Financial services

Dunfermline Building Society

In March 2009, Dunfermline Building Society collapsed, and its core business was purchased by Nationwide. Dunfermline’s failure was caused by the decision of its management to expand rapidly into commercial property prior to the financial crisis. When the property cycle turned, Dunfermline was facing serious potential losses, necessitating its break-up.

The Dunfermline collapse required the UK authorities – the Treasury, Bank, and Financial Services Authority – to use the new powers created in the Banking Act 2009. The Act included a ‘Special Resolution Regime’ to protect savers by allowing funds to be moved swiftly out of a weak institution in order to safeguard deposit-taking business. This gave the UK authorities new tools to rescue troubled institutions – including allowing temporary public ownership of banks, and the onward sale of bank assets to another financial institution.

The following transfers were made by the Bank of England, in its role as lead resolution authority:

Retail and wholesale deposits with some mortgage assets were transferred to Nationwide following a competitive process.
Dunfermline’s social housing loan portfolio was moved briefly to a bridge bank which was wholly owned by the Bank of England. It was then later sold to Nationwide following a competitive process in June 2009.
The remaining Dunfermline business was placed into the Building Society Special Administration Process, including the commercial property assets. This is being administered by accountancy firm KPMG, which is seeking to extract the maximum value it can from the remaining business.
The Treasury provided on 30 March 2009 approximately £1.6bn cash to Nationwide to meet the shortfall in retail and wholesale deposits and mortgage assets transferred to Nationwide. In return, the Treasury has a claim in the Dunfermline administration process. Any amounts that the Treasury is unable to recover from the administration can be recovered from the Financial Services Compensation Scheme, subject to a ‘cap’ currently being calculated by the independent valuer, Smith & Williamson.

To access detailed accounts for the Dunfermline resolution fund, please see:

Dunfermline resolution accounts (12 Feb-31 Mar 2010) (PDF)

Dunfermline Building Society

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Dunfermline Building Society