Press conference, Bank of Israel Governor Amir Yaron interest rate increase/Bank of Israel
The financial system in Israel is unusually centralized.
There is no need to multiply the data because this fact is agreed upon by all.
Perhaps we should just mention that 70% of all credit in the economy comes from only three banks (Hapoalim, Leumi and Discount) and over 90% of the credit for small businesses in the economy comes from the banks.
In an international comparison, Israel is one of the four countries with the greatest banking concentration in the European Union.
A little less clear to the public is the strong connection between banking centralization and the cost of living.
The banking monopoly not only costs the public a great deal of money every year (in commissions and loss of revenue due to zero interest on deposits), but as we also witnessed in the work of the parliamentary investigation committee for large borrowers that operated at the end of the 20th Knesset, powerful entities in the economy receive much better terms than medium and small entities .
This situation will ensure the strengthening of major players in food, real estate, the import of consumer goods and more. This is how banking centralization is chained to the entire Israeli economy.
Governor of the Bank of Israel Prof. Amir Yaron.
The banking monopoly costs the public a lot of money/share
How do you treat concentration?
What do we do with this concentration?
In 2017, a reform to promote competition was approved following the work of the Committee to Increase Competitiveness in Banking and Financial Services (Strom Committee).
The reform led to a series of significant steps that included the separation of the credit companies of the major banks, competition in the field of clearing, a database of credit data, steps in the fields of open banking and payments and more.
Despite all these measures, as of the beginning of 2024, banking concentration in Israel has improved only slightly (according to reports by the Bank of Israel and the Ministry of Finance).
why?
First and foremost due to an unbalanced regulatory structure that makes it difficult to implement the planned reforms.
In the previous government, a committee headed by the Director General of the Treasury was established called the "Committee for Examining the Structure of Financial Supervision". The committee did not publish any conclusions, unsurprisingly due to the opposition of the Bank of Israel.
But from various publications about its conclusions it emerged that the main problem highlighted in the discussions was that while the Bank of Israel is a powerful regulator which is mainly concerned with maintaining the stability of the banks, there is no regulator of equal status in Israel whose role is to take care of the Israeli consumer and to promote competition. The recommendation made by the committee was to move to a two-headed structure of financial regulation, which would make it possible to balance the dominance of the Bank of Israel, which is a structural barrier to the promotion of competition.
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MK Ohad Tal in the discussion. The representatives of the Bank of Israel refused any changes and even avoided meeting with the professionals/Knesset spokespersons, Noam Moshkowitz, Knesset spokespersons
It is very easy to attack the Knesset and its members, to accuse them of populism and superficiality.
Indeed, these are not easy days to defend the conduct of the political system.
But the case Yehuda Sharoni talked about in his last column is completely different.
MK Ohad Tal convened a hearing of the committee under his chairmanship after the Bank of Israel allocated ten billion shekels of extremely cheap loans (prime minus 3%) exclusively to the banking system. A step that has the potential to cause real harm to non-banking entities, as all the professionals said at the hearing including the Competition Authority, the Capital Market Authority and the members of the Budget Division at the Treasury.
During several discussions, Knesset members, led by MK Tal, asked the representatives of the Bank of Israel to find a way to amend the program so that money can be more efficiently transferred to small businesses (in practice only 50% of the money that were allocated were utilized and transferred to the small businesses), however the representatives of the Bank of Israel refused any changes and even avoided meeting with the various professional bodies.
What does the legislator do when a regulator arrives who refuses to hold any discussion with the other regulators of the financial system and refuses any discussion with the Knesset on Shabbat as a supervisory authority?
At the end of the day, and after the professionals in the discussion also believed that the claim that competition considerations should be considered in the promotion of aid measures in the economy does not constitute any interference in the Bank of Israel's monetary considerations, it was proposed to advance an amendment to the Bank of Israel Law.
Roy Folkman.
What can the legislator do when a regulator arrives who refuses to hold any discussion?/Elad Malka
The Israeli economy must compete in the financial market.
The cost of living is skyrocketing and the fact that the Bank of Israel is unable, despite the statements, to significantly promote competition in the financial system shows that there is no choice but to act, including in the area of the central bank's operations.
It is highly desirable that these things be done in coordination and partnership, but neither the public nor the legislator can accept the reality of a veto player who refuses discussion and cooperation.
There will always be reasons to postpone the promotion of competition in the name of one crisis situation or another, but the cost of living and the difficulties of small businesses require action.
The governor of the bank would do well if, instead of attacking the promoters of competition, he would cooperate and promote necessary actions together with all the regulators and the legislator.
The author is the chairman of the Financial Competition Generators Forum and a former MK.
More on the same topic:
competition
Cost of living
Roy Folkman
small businesses
Bank of Israel
the banks
Bank of Israel Governor