Commenting on the collapse of Lehman Brothers, which sparked the global financial meltdown, Governor of the Bank of Israel Prof. Stanley Fischer said today that there is no such thing as too big to fail. The question is how to let such a bank fail. "Even a big failing bank should be allowed to fall. The question is how to liquidate it."
Speaking at the Association of Banks in Israel conference to mark its 50th anniversary, Fischer said, "The global economy is recovering, and global growth forecasts are rising, too. The Israeli economy is making better progress than we predicted at the beginning of the year, and we've updated our forecasts as well."
Fischer said, "A year ago, we were in a very difficult place in the crisis. The Bank of Israel cut the interest rate several times, along with the world's leading central banks. A year ago, we hadn’t yet seen results, and I began my speech thus: 'You bankers should be praised, and you face challenges.
"This year, I reiterate: 'You bankers should be praised, and you face difficult challenges related to the future of the economy. The medicine worked, the global economy has resumed growth, and the Israeli economy has emerged from recession and is in a better place than other developed economies."
Fischer thanked the bankers for implementing Basel II - The New Basel Capital Accord of the Basel Committee on Banking Supervision during a year of crisis. He noted, "The most important thing is that Basel II set risk management guidelines, which are essential for the Israeli economy."
Commenting on Israel's banking structure Fischer said, "Would it be better to have three or four big banks instead of two? In principle, yes, but the question is whether three or four big banks are better than two big banks and five little ones. That's already another question. It may be that a situation of three or four big banks creates competition in the short term, but after 18 months, you'll still have three or four big banks and the same concentration as today. It's not clear if that's a better situation, and we have to examine the matter thoroughly."
Applying his personal experience, Fischer raised another issue. "Another question is whether it is worthwhile switching to a universal banking system, in which there are a number of large financial groups, and to let them compete. I worked for years at an institution that included banks and insurance companies and I did not see any special advantages.
Published by Globes [online], Israel business news - www.globes-online.com - on December 29, 2009
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