Kahlon, Flug launch committee to increase bank competition

Committee will seek to find balance between competition and financial stability.

By
June 3, 2015 20:08
2 minute read.
money

Shekel money bills. (photo credit: REUTERS)

 
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Finance Minister Moshe Kahlon on Wednesday took the first step to fulfilling one his main campaign promises when he and Bank of Israel Gov. Karnit Flug announced the creation of a committee to increase competition in the banking sector.

The committee, to be headed by former antitrust commissioner Dror Strum, will include representatives from the Finance Ministry, the Bank of Israel and academia, and is tasked with providing policy recommendations within 100 days.

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“Our goal and the goal of the committee is to bring real competition into one of the most concentrated areas of Israel’s economy: the banking sector,” Kahlon said.

Just three banks accounted for 70 percent of the NIS 50 billion sector, he said, a situation that cost households hundreds or thousands of shekels each year.

Kahlon and Flug have long agreed about the overconcentrated financial system, but they have voiced disagreements on how to tackle the problem. Flug, whose first priority is to ensure stability in the financial system, has been cautious about reforms that might push existing banks toward failure.

BoI’s Supervisor of Banks Dudu Zaken has steadily imposed a series of regulation that slashed fees, made switching banks easier, and required the provision of basic services at low cost.

Flug’s comments on Wednesday reflected that position.



“The committee will recommend additional steps that will increase competition and deepen fairness in the financial system, while ensuring appropriate regulations, protecting the funds of depositors and savers, and the stability of the financial system,” she said.

Kahlon, on the other hand, has made consumers the priority. His famous cellular reforms, for example, helped slash consumer prices tremendously, but have also raised fears that one of the major cellular providers – whose profits have plummeted some 90 percent in four years – might go out of business. If the same were to happen to a bank, the economy could suffer a major financial crisis.

“Competition is the best friend of the consumer, competition is good for companies and good for citizens, and therefore we are striving to advance it in every field,” Kahlon said on Wednesday.

In the appointment letter, the committee was asked to examine how new players offering banking services could enter the market, including by separating credit cards from banks (a policy Kahlon championed during the election campaign), and removing barriers to entry. The committee’s task of presenting recommendations in 100 days puts its deadline at September 11, though that is a Friday, so it may not turn them in until the following Sunday.

In his remarks, Kahlon promised that reforms for the insurance and pension markets were also on the way.

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