4The lending limit
For section 6 of the 1986 Act there shall be substituted the following section—
“Making loans
6The lending limit
(1)A building society shall secure that the difference between—
(a)the value of X on any quarter day; and
(b)the value of Y on that day or the value of Y on the immediately preceding quarter day, whichever is the greater,
does not exceed 25 per cent of that value of X.
(2)For the purposes of subsection (1) above—
X = the difference between the total assets of the society and any subsidiary undertakings of the society as shown in the society’s accounts and the aggregate of—
(a)the liquid assets of the society and any such undertakings as shown in those accounts in pursuance of regulations under section 73(7);
(b)the fixed assets of the society and any such undertakings as so shown; and
(c)where any such undertakings are insurance companies within the meaning of the [1982 c. 50.] Insurance Companies Act 1982, such of their assets as shown in those accounts as represent long term insurance funds; and
Y = the principal of, and interest accrued on, loans which are owed to the society or any subsidiary undertaking of the society and are fully secured on residential property;
and for the purposes of this subsection the total assets of a society and any subsidiary undertakings of the society shall be taken to be increased by the amount of any provision made for bad or doubtful debts of the society or any such undertaking.
(3)Any loans owed to the society or any subsidiary undertaking of the society shall be disregarded for the purposes of the definition of “Y” in subsection (2) above to the extent that they are not included in the total assets of the society and any such undertakings as shown in the society’s accounts.
(4)Any reference in subsection (2) or (3) above to anything being shown in a society’s accounts shall be construed—
(a)in relation to a quarter day on which a financial year of the society ends, as a reference to its being shown in the accounts prepared by the society for that year;
(b)in relation to any other quarter day, as a reference to its being shown in the accounts which would have been prepared by the society for the year ending on that day if that year were a financial year of the society.
(5)If a building society fails to comply with the requirement imposed by subsection (1) above—
(a)the powers conferred on the Commission by section 36 shall become exercisable in relation to the society; but
(b)the failure shall not affect the validity of any transaction or other act.
(6)The Treasury may by order substitute for the percentage specified in subsection (1) above such greater percentage (not greater than 40 per cent) as appears to them to be appropriate; and an order under this subsection may make such supplementary, transitional and saving provision as appears to the Treasury to be necessary or expedient.
(7)The Commission may, with the consent of the Treasury, by order—
(a)modify subsections (2) and (3) above in their application to assets of subsidiary undertakings;
(b)apply those subsections to corresponding assets of associated undertakings; or
(c)modify those subsections in their application to such assets.
(8)An order under subsection (7) above may make—
(a)different provision for different circumstances;
(b)provision for particular assets of undertakings to be disregarded; and
(c)such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient.
(9)The power to make an order under subsection (6) or (7) above is exercisable by statutory instrument.
(10)No order shall be made under subsection (6) above unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.
(11)A statutory instrument containing an order under subsection (7) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(12)In this section “long term insurance funds”, in relation to an insurance company within the meaning of the [1982 c. 50.] Insurance Companies Act 1982, means funds maintained by it—
(a)under section 28(1)(b) of that Act (assets attributable to long term business); or
(b)where it is incorporated in a country or territory outside the United Kingdom, under the corresponding provisions of the law of that country or territory.
(13)Where a loan is owed to a lending syndicate of which a building society or connected undertaking of a building society is a member, so much of the loan as is referable to the society’s or undertaking’s participation in the syndicate shall be treated for the purposes of this section and sections 6A and 6B as a loan owed to the society or undertaking.
(14)In this section and section 7—
“accounts”—
(a)in relation to a building society without subsidiary undertakings, means individual accounts under subsection (1) of section 72;
(b)in relation to such a society with such undertakings, means group accounts under subsection (2) of that section;
“quarter day”, in relation to a building society, means a day on which a financial year of the society ends, or a day which is three months, six months or nine months after such a day;
and references to any value on a quarter day are references to that value at the close of business on that day.
(15)If an agreement between the Commission and a building society so provides, the definition of “quarter day” in subsection (14) above shall have effect in relation to the society as if for any reference to a number of months there were substituted a reference to a number of days specified in the agreement.”