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(photo credit: Ariel Jerozolimski)
The Knesset Finance Committee on Monday ordered the Finance Ministry to present a new proposal by year-end that would tighten the distribution fees that banks are demanding from mutual funds.
"I am asking the Finance Minister to review the issue of mutual fund fees within a year's time from when they were passed - that is until the first of January 2007 instead of January 2008 as planned," said Yaacov Litzman, chairman of the Finance Committee. "If we don't receive a proposal we will interfere and act accordingly."
The committee meeting was held to discuss recent announcements of bank fee increases at Bank Leumi, Bank Hapoalim and Israel Discount Bank and, in particular, the decision by Israel Discount Bank to charge a new fee of 0.1 percent for the purchase and sale of mutual funds.
"It is clear that the rules of the game have changed and the time has come to review the ceiling for the distribution fees of mutual funds," said Yossi Bachar, director-general of the Finance Ministry, who was heading the commission on the capital market reform. "When determining mutual fund fee rules, we were working under the assumption that the banks would not take the charges from the consumer."
The purpose of the Bachar commission had been to broaden the capital market, bring in more players and boost competition.
"We are disappointed about the increase in banking fees, which points to a situation, in which the competition is not satisfactory," said Yoav Lehman, outgoing Supervisor of Banks. "The profitability of the banks improved even after labor costs increased and, therefore, I do not understand why this is happening."
Last week, Lehman asked the Ministry of Industry and Trade to impose controls on several fees including monthly charges for credit card use and fees for starting a loan.
Members of the committee agreed that the current situation was unacceptable, which showed that there was not enough competition in the banking sector and that the environment reminded of a cartel.
"Competition requires a number of players in the banking system rather than a duopoly," said MK Avishai Braverman. "We must create at least a third large bank".
Also speaking at the committee meeting, Yossi Nitzni, vice-president at Mizrahi-Tefahot, complained that even after the Bachar reforms and the privatization of the banks, the concentration of the large banks and their monopolistic power remained.
"We are staying behind in a market, where the large banks are still determining fees," he said.
Meanwhile, the fact that the banks weren't represented at the hearing by senior management did not elude Litzman who pointed out that about a year ago when the committee met and the banks pushed the issue of mutual fund charges, the heads and chairmen of the banks did not miss the opportunity to appear in person.
"Today, the banks are presented here by representatives of the seniority level of vice-presidents," he said.
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