A protest at Discount Bank last month.
A protest at Discount Bank last month. Many banks at Tel Aviv’s Gan Ha’ir had their windows broken. Photo by Tomer Appelbaum
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Banking jargon abounds with terms that are comprehensible only to a select fraternity of experts. But one of the most common words is easily understood: “reasonable.”

Sometimes this word appears all on its own, sometimes it’s accompanied by other terms like “justified” and “appropriate.” The word is in the repertoire of board members seeking to justify the giant salaries they approve for top executives.

In March, Bank Mizrahi-Tefahot revealed that the cost of CEO Eli Yones’ salary came to NIS 10.2 million in 2011. Over the past seven years, the cost of Yones’ salary has totaled NIS 83 million. Jacob Perry, Mizrahi-Tefahot’s chairman, hastened to add that the wage was “reasonable and justified.”

Two months later, when Bank Leumi’s board approved a NIS 3.25 million payment to outgoing CEO Galia Maor so she wouldn’t accept a position at a Leumi competitor, the board said the payment was “reasonable, given the circumstances.” The payment was soon nixed after harsh public criticism.

Four days after protesters broke windows at Bank Hapoalim and Bank Leumi branches at Tel Aviv’s Gan Ha’ir, Mizrahi-Tefahot invited its shareholders to a meeting. Mizrahi-Tefahot has a branch in Gan Ha’ir, too. It’s less conspicuous than the other banks, and it managed to avoid the demonstrators’ fury.

On the agenda at the meeting: to approve a “reasonable” bonus of NIS 1.1 million on top of the NIS 16 million in wages paid over the past seven years to Perry, who has a 60 percent position. That is, the chairman works at the bank four and a half hours a day, or three days a week. The bonus was approved.

Based on data from the Central Bureau of Statistics, 42 Israeli bankers pocketed a total of NIS 162 million in 2011. Meanwhile, 80 percent of Israelis can’t make ends meet because their incomes are less than their expenditures. The bankers would probably claim that not only are their salaries reasonable, competition among banks is reasonable, too.

Until last month, Bank of Israel Governor Stanley Fischer stood with the banks and warned about stirring up a hornet’s nest. “In Israel a protracted process is under way of weakening the banking system,” Fischer told the Knesset Finance Committee three months ago. “We mustn’t think populist thinking − that it’s possible to continue to reduce banking costs to infinity without repercussions for the system’s stability.”
 

Fees hard to understand

Last year, the protesters called Fischer “the banks’ greatest lobbyist” because in recent years he has prevented competition in the sector, citing concerns about stability. But it seems he’s no longer buying into the banks’ doctrine of reasonability.

In late June, the week after the demonstration at Gan Ha’ir, Fischer fired off a sharp message to the banks at the annual Caesarea conference sponsored by the Israel Democracy Institute.

“When we say the financial system has to be sturdy and stable and therefore profitable, this doesn’t mean we’re giving the banks a license to do everything they see fit to do. The banks have to listen to their customers; they must compete and provide banking services at reasonable prices. If they don’t do so, the regulatory environment will change significantly,” he said.

“We cannot continue with the present situation in which the Bank of Israel supports the banks’ stability and this is viewed as a policy that allows management fees that are very hard to understand.”

The protest a year ago brought hundreds of thousands of Israelis onto the streets but did nothing to change the bankers’ conduct. Top executives in the industry are still pocketing immense salaries and have strongly opposed any attempt to increase competition. They’re still leaning very hard on households and small businesses.

In 2011, these two sectors funneled no less than NIS 19.2 billion to the banks in commissions and interest fees. This sum is double the money the business sector yielded them. These two sectors proved the banks with around half their total revenues. Total commissions and interest fees paid by households and small businesses have grown by about NIS 2 billion in the past two years.

In September, the Trajtenberg committee on socioeconomic change said competition among banks in the market niche of households and small businesses was too low, so prices were high. The committee concluded that increasing competition in the banking system could yield annual savings of NIS 3,000 per household, and savings of NIS 8 billion for the entire economy.

Where is this NIS 8 billion hiding? Based on data from the Bank of Israel’s banks supervisor, households spend between NIS 14.11 and 18.43 on bank fees per month, on average. This sounds negligible, but it’s only a partial figure. The data only cover fees charged for common passbook-account services. The basket doesn’t include dozens of other fees that were recently exposed by TheMarker.

The fee for changing the date on which a credit card comes due is NIS 10.

usinesses are charged NIS 24 per employee for transferring salaries. A letter from the bank that warns of a breach of a credit limit will trigger a NIS 90 charge, and a transfer of foreign currency abroad costs $32.

“If one commission didn’t exist, there would be some other commission,” Bank Otsar Ha-Hayal CEO Israel Trau recently declared with surprising candor.

It’s better abroad

The situation also remains dismal when it comes to interest the banks charge small customers for credit. The Knesset’s Research and Information Center says the interest Israeli banks charge to households is significantly higher than that charged in 25 other countries. Israelis pay the banks an excess NIS 4.3 billion. The banks say the comparison is faulty and that the interest paid by small customers is reasonable.

The large banks wrote down hundreds of millions of shekels this year on the debts of tycoons like Nochi Dankner. These are the same tycoons to whom the banks have given big loans for many years, as the Bank of Israel has said.

At the same time, the banks shut the credit flow to households and small businesses. The stranglehold on these two sectors grew tighter this year after the number of accounts restricted by the banks climbed by 77,000, to nearly half a million, mostly individuals. If the climate worsens, as many predict it will, the rate of restricted bank accounts will increase. ‏(Currently, around 9,000 more accounts are restricted each month.)

In the Knesset, there are 20 lobbyists representing the banks and the banks’ umbrella association. They try to explain to the 120 MKs that the Israeli banking system’s conduct is reasonable.

For their work, the lobbyists receive millions of shekels a year. No one knows exactly how much. The major shareholders in the banks are the public, which deposits its savings in banks. In other words, it’s the public that finances the lobbyists, whose job it is to prevent competition that would ease pressure on households. The supervisory bodies − the Bank of Israel and the Israel Securities Authority − haven’t required the banks to report on these lobbying expenses, and the banks don’t volunteer this information.

It’s not certain that the banks and lobbyists will emerge from the struggle with the upper hand. The protests’ focusing on the banks, Fischer’s recent statement and the scent of elections are all reasons for optimism. Next week, the government’s committee on increasing competition in the economy will release its recommendations.