Former Ministry of Finance director general David Brodet told the Knesset Finance Committee today that the recommendations by the committee he headed to reform Israel's banking structure aimed at bringing Israel's capital market into the "First World". He said, "Israel's capital market is a crippled market suitable for the Third World." The Brodet committee recommended a partial and optional separation between the banks and mutual and provident funds.
Finance Committee chairman MK Abraham Hirchson (Likud) initiated the establishment of the Brodet committee under the aegis of The Israel Democracy Institute in advance of the institute's last Annual Economic Conference (the ''Caesarea Conference''), where the Brodet committee presented its recommendations. At the opening discussion on the committee's report, Brodet said limited and insufficient banking and capital market reforms had been carried out over the past 20 years. Nevertheless, the market has remained over-centralized in comparison with other countries. Israel's two large banks - Bank Hapoalim (LSE:BKHD; TASE:POLI) and Bank Leumi (TASE:LUMI) - manage almost all of Israel's capital market.
"This is an unhealthy situation for the banking sector as well," said Brodet. "It carries various risks for their financial stability, as we see once every ten years. It is therefore important to bring new players into the market, which will expand its foundation so as not to depend solely on the banks."
Brodet said Israel's market needed non-bank mediators, because the high proportion of financial mediation by the banks was one of the risks threatening the banks' financial stability. "Under these circumstances, with the banks wearing several hats, there is the potential for conflicts of interests on the part of advisors, investors, and underwriters. A prudent regime prefers a broad foundation with many players that is not dependent on a single entity."
At the start of the Finance Committee meeting, Hirchson said he would no longer recuse himself from chairing meetings on banking issues as of next week, even if the Knesset Ethics Committee does not complete its hearing on a complaint filed against him by the Movement for Quality Government in Israel. The Movement for Quality Government claims Hirchson has a conflict of interests between his position as Finance Committee chairman discussing banking issues, and the financial difficulties of a holding company owned by his son, Ofer Hirchson, and Zvi Barak.
Published by Globes [online] - www.globes.co.il - on October 13, 2004