Supervisor of Banks Rony Hizkiyahu strongly attacked the Ministry of Finance's capital markets, insurance, and savings division, with regard to behavior of institutional investors, and with regard to what is going on in the non-bank credit market.
Hizkiyahu spoke at the "Globes" Israel Business Conference in Tel Aviv today, saying, "The transfer of the public's assets from banks to the non-bank credit market over a short period (the sale of provident funds and mutual funds in the wake of the Bachar Committee reform of capital markets - EP) was not accompanied by close supervision.
"A structural problem has been created. The banks, by definition, keep stable even without supervision. The interest stemming from responsibility for depositors' funds, and the fact that they bear losses, creates standards. But by investment institutions, the connection between bearing taking on risk and bearing risk has been severed. When you manage other peoples' money, but the loss that is generated is the customer's and not yours, it is an inefficiency. It is a structural problem that needs a solution. But until there is a solution, the system will continue to take risks because the organization that manages does not pay a price, rather its customers do. This leads to a loss of confidence by the public in the markets and to continued crises."
Hizkiyahu believes that the risk management at investment institutions is not good. "There is a surplus of money in the financial system. And when there is a surplus you need to do something with it, and then investment institutions take risks."
Published by Globes [online], Israel business news - www.globes-online.com - on December 13, 2009
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