Financial system reforms take one step forward

Netanyahu, Kahlon, Flug   Kobi Gidon, Eyal Yitzhar

Reform of banking and credit is one of the main items on incoming Finance Minister Moshe Kahlon's agenda.

The five main matters that the new government will tackle in its first year were decided by agreement in a discussion on banking reform today. The participants in the discussion were Prime Minister Benjamin Netanyahu, Governor of the Bank of Israel Karnit Flug, and incoming Minister of Finance Moshe Kahlon, together with their aides and invited economic experts.

Financial regulation

The discussion on consolidating financial regulation resulted in a general understanding that change was necessary in the current situation of fragmented powers and of contradictions between the Banking Supervision Department of the Bank of Israel, the Israel Securities Authority, the Commissioner of Capital Markets, Insurance and Savings in the Ministry of Finance, and the Anti-trust Authority. However, a proposal that was raised to set up an independent state financial board that would centralize all financial regulation and supervision was adamantly opposed by Flug, mainly because it would mean taking supervision of banks away from the Bank of Israel. Netanyahu said he would not accept a decision that the Governor of the Bank of Israel opposed, and the decision that was adopted was to examine the matter and discuss it further.

The Credit Information Service Law

It was agreed that the Credit Information Service Law should be amended, or some other way should be found, to provide positive information on retail customers, and not just negative information, as the law currently stipulates. A personal credit rating for a customer eliminates the information near-monopoly currently held by two big banks that keeps retail customers captive. An efficient, independent rating system or "banking ID card" not dependent on the banks themselves would enable good customers with proven repayment ability and awareness to obtain preferential credit terms. A personal credit rating administered by licensed information agencies is normal in most developed countries.

Deposit insurance

Although there is agreement among all parties concerned to take a positive view of the matter and to proceed with it, it should be pointed out that such decisions have repeatedly been made very few years by every government since 1969, when the Bank of Israel produced a first draft bill.

Joint computing infrastructures

This is something that Kahlon brought with him from his experience in promoting competition in mobile telephony. It was decided to start working in parallel on promoting the establishment of a computing infrastructure, even state-funded, that will enable new players to start business without having to devote large amounts of capital to investment in computing infrastructure.

The possibility will also be examined of obliging large banks with independent computing infrastructure to allow new players to take a rise on their infrastructure, at controlled prices. The method chosen by Bank Yahav will also be examined. Bank Yahav is currently dependent on Bank Hapoalim's computing network. It has contracted with a unit of Indian conglomerate Tata to buy an off-the-shelf system in use by hundreds of banks around the world, that will be adapted for it.

Divesting the banks of credit card companies

A subject discussed at length but about which no practical agreement was reached was divesting the banks of their credit card companies. This is one of Kahlon's flagship plans. Although it had been generally thought that Flug was opposed to the idea, at today's discussion she said she was in favor, but only if a way could be found of carrying out the measure without causing damage, without reducing the public's access to credit, and without leading to higher fees. Interviewed by "Globes" yesterday, Ilanit Madmoni, who is responsible for credit cards at the Bank of Israel, said on this question, "This could be a drastic step. You have to see who buys these companies, and ensure that the concentration of ownership isn't simply transferred elsewhere. Will such a sale reduce costs for the consumer?"

Distribution of credit

Banking is one of the main subjects in Kahlon's plans. In late February this year, at the height of the election campaign, Kahlon said, "Small businesses employ a third of the workers in the economy, but receive 3% of the credit. That makes no sense. The time has come for greater justice in credit. Regulation is also skewed here: we're halfway to becoming Russia instead of the US. In the US, everything is permitted except what's forbidden, and in Israel everything is forbidden except what's permitted. The time has come for us to be more like America."

Published by Globes [online], Israel business news - - on April 30, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Netanyahu, Kahlon, Flug   Kobi Gidon, Eyal Yitzhar
Netanyahu, Kahlon, Flug Kobi Gidon, Eyal Yitzhar
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