Evolution, not revolution
If all the steps recommended by the Zaken report are accepted, there's a good chance that in a few years the competition between banks will improve.
Everyone involved in preparing the Zaken committee report on competition in the banking sector apparently agrees on one thing: Until now, the Bank of Israel was seen as being concerned solely with the banks' stability, even at the expense of the little guy who was paying through the nose. Today, however, that is no longer the case.
The Zaken report - released by David Zaken, supervisor of banks at the Bank of Israel - was an outgrowth of last year's social protests and the resulting Trajtenberg Committee. It confirms that the banking system is too centralized, that there isn't enough inter-bank competition, that there's a lot of operational inefficiency, and that certain sectors, such as small businesses and households, pay fees and interest that are too high.
According to the report, the beneficiaries of these failures are not the banks' controlling shareholders: The return on bank shares is lower than what is standard abroad. The money is to be found in the pockets of some 10,000 preferred employees, who together earn a total of NIS 7 billion a year, while the 40,000 remaining workers make do with a total of NIS 10 billion. The privileged 20 percent include branch and department heads, longtime employees and thousands of costly and superfluous computing department workers. They enjoy salaries of tens of thousands of shekels a month, tenure for life and generous pensions.
To correct these distortions, there's a need to revamp the personnel structure at the banks, but the banks supervisor isn't doing that - because he can't. The workers' contracts and terms were legally obtained and no court is going to approve unilateral changes.
Instead, the banks supervisor suggested ways to increase competition in the field. Two of the most important recommendations relate to enabling customers to switch banks easily by opening and closing accounts online, and providing a uniform "customer certificate" that will enable a customer to show their credit history to other banks they may be considering.
With that, the banks supervisor did not discuss the need to break up the bigger banks, merging a small bank with an institutional body that could create a new competitor, or separating the credit card companies from the banks - suggestions made by the chairman of the Antitrust Authority, David Gilo.
If all the steps recommended by the Zaken report are accepted, there's a good chance that in a few years the competition between banks will improve. But the process will be evolutionary, not revolutionary.