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Attempts by Knesset members and small business representatives to delay implementation of the new overdraft directive until the beginning of 2007 just days before they are set to take effect were squashed on Wednesday. The Bank of Israel, however, reiterated its position that implementation of the directive would be eased in during the first few months.
"Knesset interference via legislation into the supervision by the Supervisor of Banks would hurt the authority, standing and independence of the Supervisor of Banks and the Bank of Israel," said Finance Minister Avraham Hirchson in his speech to the Knesset while the issue was being considered. "Moreover such interference would diminish Israel's standing in the international arena and potentially affect the country's credit rating."
The bill turned down by the Knesset was presented by the Economics Committee Chairman MK Moshe Kahlon (Likud) in the Knesset plenum. The bill would have required the Bank of Israel to retroactively seek Economics Committee approval for the overdraft regulation currently being implemented by the banks and the Bank of Israel - in effect allowing the committee to stall application of the new rules. That would have meant any Bank of Israel initiatives by the Supervisor of Banks that would impact households and small businesses would have required the imprimatur of the Knesset Economics Committee.
"This is a sad day for the citizen," Kahlon told The Jerusalem Post. "Small businesses will be forced into the gray market for credit sources."
The Banking Association agreed with Hirchson that legislative interference in the proceedings of the Bank of Israel and the Supervisor of Banks represented a form of regulation that was not healthy.
MK Ruhama Avraham (Kadima) had suggested freezing the rules' implementation, which are scheduled to come into effect July 1 for three months and establishing a joint commission, in which she and Kahlon would sit with the banks and regulators.
"In three months time, we will be in the same situation as today. The start of the overdraft reform has already been delayed by six months - enough time - but not much has happened," Hirchson had argued.
In response, Avraham told the Post, that the main problem is that the Bank of Israel has done very little to educate the public and enhance awareness of the changes that the overdraft reform involves
Small business leaders and MKs Avraham and Kahlon have in past weeks been pushing for small businesses to receive some sort of exemption from the new rules, while the Bank of Israel, Finance Ministry, and Labor economist Avishai Braverman have been fighting to fully implement the overdraft reform from July 1.
"The public will not forgive the government on this. Businesses will collapse and people will commit suicide because of the directive," said Kahlon.
Small business representative Yehuda Alhadef, meanwhile, claimed that the stricter overdraft rules would have grave consequences for the nearly 400,000 small businesses he represents.
"One-fifth could collapse without anyone noticing, because of the decision of one man," he said, referring to Yoav Lehman, Supervisor of Banks.
The Bank of Israel on Wednesday asked the country's banks to allow flexibility in implementing the overdraft directive in order to ease the process and calm the panic in the public worried about sudden credit crunches. The central bank stressed that, from Sunday, banks will not be obligated to return a check or other debit.