bank hapoalim 88 298.
(photo credit: Ariel Jerozolimski)
Three weeks ago Bank Leumi raised the fees it creatively inflicts on ordinary household and small business accounts for the most mundane transactions. One week later Discount Bank rushed to do likewise. Last week Bank Hapoalim joined the other two in the three-largest-banks club and hiked its fees by a 10% average.
It's not as if these banks are experiencing hard times. Far from it. All three boast outstanding profits, the sort that can only be described in superlatives. Moreover, their overhead is down, as are prices in the economy in general. There was no pressure for the increases. In 2005, nearly 32% of all bank profits were accrued from fees, some NIS 140 on average per account per month. The three large banks have now made their services more expensive to their smallest clients because they could. And they moved in near-unison - one week apart from each other - in monopolistic tradition.
Unsurprisingly, this has raised a ruckus. The Knesset Economics Committee has revived an old bill that threatens to declare the large banks a monopoly and impose controls on their fees. The Supervisor of Banking has asked the Industry, Trade and Labor Ministry to impose price controls on the banks and the Bank of Israel has bewailed the "insufficient competition" between Israeli banks.
As if we didn't know and as if this were something new. But it's all too d j vu.
Already two years ago the Israel Antitrust Authority launched an extensive open investigation against the banks on suspicion that they coordinate their fees, making them essentially equal everywhere and making it impossible for their clientele to behave as wise consumers. There are very few alternatives - although, this time around, the sixth-largest Union Bank has announced it won't join the fee-hike fest, a move for which it deserves our congratulations and support.
The anti-trust investigation, however, is being conducted in name only. Not much has been heard about it since its hyped launching on November 29, 2004, which followed undercover probes since 2002. By now said investigation has all but expired. The top three banks must have interpreted this as a good omen, an indication that they can charge whatever they wish with impunity.
The public's sense of grievance is reinforced by every announcement of massive bank profits and massive salaries to top figures in banking. It is reinforced by the high interest rates charged to members of the public when they borrow and the low interest on their savings.
How little choice Israelis feel they have is evidenced by polls which indicate that nearly a third of all bank clients declare they want to switch banks. In the end as few as 5% do, a fact which underscores the apparent conviction that all banks function in cahoots and offer the same unattractive terms.
Thus far the banks have every reason to suppose that they'll survive the latest round of bellyaching and get away with their higher fees. But sooner or later the banks' high-handedness will return to haunt them. Sooner or later, the backlash will trigger populist legislation and stringent regulation, both generally detrimental to a free-market economy. And when that time inevitably comes, the banks will have no right to cry foul. They will have brought restrictions upon themselves because they didn't know when to stop.
For free enterprise to work, there must be real competition. Excessive control may be unhealthy for the economy but so are monopolies. In the end they all sap initiative and obstruct the market's lifeblood. If sufficient competition cannot be generated among local banks, ways should be found to open the market to foreign banks, which in any case should be healthy for the economy.
The banks still retain the option to curb their insatiability before they destabilize the economy as they did in 1983-84. Representatives of the greater good - be they in the Bank of Israel, the Industry, Trade and Labor Ministry and the Knesset - must not yet again succumb to the lethargic hypothesis that the banks cannot be overcome.