“Real reform in the financial system requires separating the banks from the capital market. The banks should be barred from assuming certain functions in the capital market. The banks should be completely separated from both ownership and management of mutual and provident funds, portfolio management companies, and underwriting firms. Any attempt to allow the banks to retain these roles, whether directly or indirectly, is liable to miss the target,” an interim report by Prof. Marshall Sarnat states. Knesset State Control Committee chairman Amnon Cohen (Shas) appointed Sarnat to head a team examining capital market reform. The committee will discuss the report today.
Sarnat, who was a member of the Beisky committee, said that the proposal to separate the banks from the capital market was not designed to punish the banks. The aim is to create an effective financial system capable to promoting sustainable economic growth. “Taking the banks out of the capital market, except for the marketing and distribution of financial products, is an essential condition for a fundamental overhaul in the financial system, and the creation of a free and competitive capital market. Breaking the banks’ monopoly in the capital market will encourage and facilitate the entry of new financial institutions, both foreign and domestic, into the Israeli capital market. A non-banking sector of investment banks and other financial institutions will emerge, in addition to the commercial banks, which will boost competition, improve the market’s effectiveness in allocating resources, and help Israel integrate in the global economy,” Sarnat’s report asserts.
Sarnat is professor of banking and financing and dean of the business administration faculty at the Ono Academic College. His team also includes economic consultant David Boaz, New York University Professor of Finance Menachem Brenner, Ministry of Finance financial consultant June Dilevsky, and Ashkelon Academic College Professor of Law Michael Corinaldi.
Cohen will demand tomorrow that the report’s recommendations be implemented, with a preliminary reading next week of his bill for separating the banks from the ownership and management of mutual funds.
Published by Globes [online] - www.globes.co.il - on July 20, 2004