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Barnsley Building Society was today taken over by larger neighbour Yorkshire Building Society after it emerged it held £10m with collapsed Icelandic banks.
The Barnsley, which has 60,000 members, most of them in the Yorkshire area, held deposits with Kaupthing Singer & Friedlander and Heritable banks - UK subsidiaries of Icelandic institutions which went into administration earlier this month.
The societies said the announcement followed "swift, pre-emptive action from the board of the Barnsley in approaching the Yorkshire to seek a merger after the identification of possible losses of deposits with Icelandic banks".
The acting chief executive of Barnsley Building Society, Steve Mitchell, said its reserves were big enough to absorb the potential loss of the money, but added: "The board considered that their reduced level would restrict its ability to provide members with the security and benefits associated with mutuality.
"In response, the board has made a very positive decision to lead the society into a more secure future as part of a larger society through a merger with Yorkshire Building Society, which shares our values and has a strong commitment to members, staff and local communities."
The Yorkshire, which has its head office in Bradford, is the UK's third largest society with more than 1.9 million members.
It said it would pursue recovery of Barnsley's assets with the Icelandic banks, although it was unclear if this would be successful or how long it would take.
In the meantime it said there would be no payouts to Barnsley members. If the assets are recovered it said it would consider a windfall payment to savers and borrowers, but this would be made after recovery costs and taxation had been taken into account.
Sector strength
Iain Cornish, chief executive of the Yorkshire, said his society's members would benefit from Barnsley's strong funding position and high quality mortgage book.
"This merger is a further step in demonstrating the strength of the mutual sector in the UK, with complete certainty to customers maintained at no cost to the taxpayer.
"I am delighted that the Yorkshire's strong financial position enables us to provide assurance to the members of the Barnsley, as well as preserving its local character."
The combined society will be called Yorkshire Building Society but will retain the Barnsley brand on its eight existing branches.
Mortgage borrowers on Barnsley's standard variable rate (SVR) of 7.19% will be migrated to Yorkshire's SVR, which is currently 6.9%, but savers will remain under the Barnsley brand.
Yorkshire said they would be offered similar or better terms and interest rates than those offered by the Barnsley prior to the merger.
In total the new society will have 144 branches and almost £400m in assets.
The Barnsley is the latest society to fall victim to the credit crunch. This month Derbyshire and Cheshire building societies confirmed they were merging with the UK's largest society Nationwide, and in the summer the Catholic Building Society announced plans to merge with the Chelsea Building Society.
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