What is the optimal structure for controlling a bank in Israel? The Bank of Israel is reconsidering its position on this matter as a result of the current crisis surrounding the dismissal of Bank Hapoalim chairman Dan Dankner.
The central bank is now weighing a move which it rejected in the past: switching to the American model, in which control of a bank is decentralized, with all of its shares freely traded on the open market - and with controlling ownership being the result of free market forces. Therefore, the Bank of Israel is now studying whether there is really a need for a defined controlling interest at all.
In theory, this kind of examination is relevant only with regard to Bank Leumi, the sole, large Israeli bank without a controlling core of shares. However, any decision could certainly become applicable to other banks in the future, for example, if the present controlling shareholders decide to sell.
The central bank most likely wants to use Bank Leumi as a test case and offer all its shares on the stock market to the public - and also see how the bank functions under a decentralized system of public ownership - as in the American banking system.
This is a major change in the position of the Bank of Israel, which not only previously rejected the possibility of public ownership, but also opposed "conducting experiments" on a large bank such as Leumi.
This development certainly reflects the central bank's disappointment with the actions of the controlling core of ownership not only in Bank Hapoalim, but also in other local banks. However, the main source of disappointment is, of course, Hapoalim, and Shari Arison, the bank's sole controlling shareholder. The Bank of Israel harshly criticized the way the bank has been managed in the past few years, which prompted the demand for Dankner's resignation. The criticism did not spare the bank's controlling shareholder either, who was seen as being responsible for the appointment of senior management at the bank. Also, after Fischer and Banks Supervisor Rony Hizkiyahu demanded the dismissal of Dankner, Arison went public with an attack on the central bank.
After problems arose in the negotiations between Arison and the supervisor of banks, the Bank of Israel reached the conclusion that the core controlling interest of a bank must be in the hands of more than one person. However, even when there is more than one controlling owner, serious problems may arise - such as in the case of the Union Bank, which has suffered from prolonged management stagnation because its controlling owners have been at odds with each other.
One of the most important justifications for the requirement of a designated controlling interest in a bank, as compared to decentralized public control, is the existence of a specific "address" for the supervisor to turn to when there are problems and issues to discuss - and, in particular, when it is necessary to come up with additional equity for a bank. But this has also turned out to be a serious disappointment for the Bank of Israel, as such requests of a number of banks have been refused to date by the controlling owners.
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