Britain’s troubled building societies could be handed a lifeline by the Treasury, as Alistair Darling, chancellor, looks for new ways to allow them to raise capital without losing their mutual status.

Darling wants to encourage the mutual model as a means of increasing diversity in Britain’s financial services market, but has been dismayed to see several building societies go to the wall or have to be rescued by rivals in recent months.

A Treasury white paper, expected this month, will address the question facing struggling mutuals of how to raise much-needed capital without losing their status and becoming a plc like other banks by creating a new financial instrument to allow the mutuals to raise tier one core capital. However, this solution is expected to take some time to set in place.

Financial Times