A Bradford finance chief has called for the state-owned Northern Rock bank to be returned to its mutual roots to help ministers achieve their aim of diversifying the financial services industry.

Speaking at the Building Societies Association in Birmingham, Yorkshire Building Society boss Iain Cornish urged the Government to re-mutualise Northern Rock, which was bailed out by the Labour Government in February, 2008.

Its failure helped spark the UK’s financial crisis which also led to the demise of Bradford & Bingley.

The move is supported by more than 100 MPs who have signed a parliamentary motion urging the Government to return the nationalised lender to mutual status.

Before floating on the stock exchange in 1997, Northern Rock was a building society dating back to the 1850s.

Mr Cornish, a former BSA chairman, said: “Re-mutualisation of Northern Rock provides a real opportunity to create a more vibrant and sustainable financial sector.

“We recognise there are obstacles that need to be overcome, but believe that returning Northern Rock to mutuality would deliver long term benefits for consumers and the financial services sector as a whole.”

The Yorkshire, the UK’s second largest building society, strongly believed that building societies and similar mutual organisations made a crucial contribution to the competition and diversity of the retail financial services market.

Mr Cornish said that a re-mutualisation of Northern Rock would support the Government’s intention to diversify financial services, further strengthen the mutual sector and help create a more competitive banking system.

Throughout the recession, the YBS had played a key role in reinforcing the strength and stability of the mutual sector through mergers with the Chelsea and Barnsley building societies. It is currently in the process of taking over the Norwich & Peterborough society.

Following the nationalisation of Northern Rock, the Newcastle-based business was split into two, and the ‘bad bank’ part combined with the dormant mortgage business of Bradford & Bingley to form UK Asset Resolution .

This is now headquartered at Crossflatts, where around 1,200 staff are based, along with former Northern Rock offices in Newcastle and Sunderland. employing another 2,000 people.