The Zaken Committee proposed a series of measures to increase competition in the
banking sector Monday, including encouraging the creation of an Internet bank
and credit unions.
Israel’s banking system suffers from a high level of
concentration that inhibits competitiveness, a low level of profitability by
international standards, and a low level of operation efficiency relative to
banks in developed countries, the committee concluded in its preliminary report.
It said this last point was partially due to high wage costs relative to the
banks’ scale of activity.
Bank of Israel Governor Stanley Fischer and
Finance Minister Yuval Steinitz established the committee eight months ago,
appointing Banks Supervisor David Zaken as chairman.
They tasked it with
recommending measures to increase competition in the banking-services market,
improve household and small business bargaining power, expand customer options,
improve the level of services and reduce its cost.
The report proposed a
number of structural measures whose goal is to increase the number of players in
the industry, including encouraging the creation of an Internet bank or credit
union, which it said would “increase competition in the retail segments of the
banking system” in the medium-to-long term.
It said the central bank’s
Banking Supervision Department should help entrepreneurs to create such
institutions by amending regulations and providing appropriate guidance and
Institutional investors, including insurance companies,
pension funds and provident funds, should also be encouraged to enhance
competition in certain segments of activity in the banking system, but face
barriers that prevent expansion or entry into the retail credit market, the
It recommended examining the mechanism for channeling
long-term public savings to the provision of credit to households and small
The report also presented a series of measures that it said
would increase competition between existing players, reduce information barriers
and enhance transparency and fairness. It proposed creating the option of
opening accounts through the Internet, making it easier and simpler to close
accounts, and publishing the banks’ actual interest rates for purpose of
It proposed issuing banking identity cards in a uniform
format, which will provide a full and accurate picture of a customer’s assets’
liabilities, yield and bank fees. It said this would increase the customer’s
ability to manage their financial affairs wisely, and would make it easier to
compare their bank with rivals.
Regulatory intervention was covered in
detail in the report, with the team formulating recommendations for the control
or cancelation of a number of existing banking fees. These measures will not
necessarily lead to increased competition, the report said, but will hopefully
eliminate market failures that could occur as a result of the existing
The report devoted an extra chapter to small businesses, in
the belief that this sector deserves at least as much attention as households.
It found that the volume of credit to this segment is small relative to its
contribution to business output, but that bank-financing margins are relatively
higher for small businesses.
It proposed a number of measures
specifically aimed at small businesses, including reducing bank fees,
facilitating the early redemption of business credit, creating a database to
analyze their standing, and increasing the scope of reporting on provision of
credit to this sector.