Photo Credit: Hillel Maeir / TPS
Karnit Flug, Governor of the Bank of Israel.

By Michael Zeff/TPS

Jerusalem (TPS) – The Israeli government unanimously approved legislation to increase competition in the Israeli financial sector on Sunday.

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According to a Finance Ministry spokesperson, the legislation aims to shatter the current banking sector oligopoly by allowing new players to enter the financial and banking sector thus increasing market competition.

“The problem with Israeli banks is that they all suffer from a lack of efficiency in costs, which is necessarily rolled on to the consumers of their financial services,” Professor Omer Moav, an economics expert at the University of Warwick, told Tazpit Press Service (TPS). “Competition can help that. Allowing foreign banks to offer services, even through the Internet for example, will decrease costs and increase efficiency.”

The bill was proposed by Finance Minister Moshe Kahlon and is an implementation of recommendations made by the Committee on Increasing Competitiveness in the Economy. The committee was formed by Minister Kahlon and the Central Bank of Israel (CBI) in order to find legal ways to increase competitiveness and efficacy in the otherwise concentrated and cartelized Israeli banking system.

“The changes mandated by this law, mainly the recommendation to separate the banks from the credit companies, will create an advanced banking system and more competitiveness in the retail and small business fields in the upcoming years,” said CBI Governor Karnit Flug.

The main clauses of the bill include a separation of the major Israeli banks from Israeli credit companies. The three largest Israeli banks also currently own and operate the credit card companies.

The three banks, Hapoalim, Leumi, and Discount, together control about 75% of credit in Israel. The new law will force Hapoalim and Leumi at the least to sell their existing credit card companies.

In addition the new law will provide certain protections and incentives for potential new actors to enter the Israeli market, such as more flexible regulations to help them compete with the major banks.

“The bill also includes a pathway to the establishment of entirely new Israeli banks, better oversight on existing banks and on their competitiveness, the creation of new and improved databases for credit card companies, and the advancement of technology and innovation in local banks,” Governor Flug elaborated.

However, the measures proposed by the bill have been previously criticized by the International Monetary Fund (IMF) of which Israel is a member.

According to the IMF, the government committee that provided recommendations for the bill used old data in its analysis thus rendering the basis of the reform faulty and potentially harming the stability of the entire system.

While Flug and the CBI supported the bill and helped shape it to a large extent, Flug cautioned the government to implement the law responsibly. “An increase in the number of banks and financial brokers that are not banks means a higher risk of collapse,” she contended.


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TPS - The Tazpit News Agency provides news from Israel.