Taking Stock / Suddenly they're buddies with Joe Public
The banks are on the attack.
Advertising executives Moshik Teumim and Modi Kidon of Gitam have officially been hired by the Bankers Association to lead its campaign against the financial market and banking sector reform: the slogan is expected to be "Don't decide for me."
In addition to the overt public campaign, there will be a covert campaign with a more violent message: publication of the Bachar Commission recommendations will scare away foreign investors and rattle financial markets. An anonymous source at the banks this week also threatened Finance Ministry Director-General Joseph Bachar that a campaign is also being planned directly against him: Who is Joseph Bachar to decide what's best for the public-at-large and to which provident fund they should belong?
In off-the-record conversations, senior bank executives and their lobbyists are telling reporters, Knesset members, and government officials that the financial sector will tremble, there will be petitions to the High Court of Justice, and one banker even went so far to say that the banks plan to drain the provident and mutual funds.
Some of the banks' responses, even anonymously, are a double-edged sword: the style, the messages and the threats are a concrete reminder of why dramatic structural change in the banking sector is so necessary, how the banks treat customers' money, and the dangers of concentrating so much power in the hands of a handful of executives who control Israel's two major banks.
Naturally, there is legitimate criticism: The Bachar Commission's solutions are not perfect - there will be holes, question marks and new problems created. It is possible to imagine (and some are already doing so) other solutions that create a new structure in the financial sector.
That's all well and good, but let's keep the starting point in mind:
1. The current structure of the financial market is distorted, virtually monopolistic, and includes numerous market failures. The structure hurts the customers, prevents the development of an extra-bank financing system, and increases financial instability.
2. We have a window of opportunity for dramatic change in the financial sector that we haven't had since the Stabilization Plan of 1985: a determined finance minister who gets his message across, agreement among all of Jerusalem's professionals and 60 Knesset members who have already submitted private-member bills to separate the provident and mutual funds from the banks. This window of opportunity cannot be missed.
The bank's line of attack, claiming it is inconceivable that treasury officials decide for bank customers sounds logical to the layman but has no basis in reality.
First of all, Israeli governments have always decided for the public: look, for example, at the financial instruments known as provident funds and savings plans.
They were not invented by the banks at all but by the government. The tax exemption the latter gave these products is what pushed the public against its will to deposit money with the banking sector.
Secondly, the transfer of ownership of the provident and mutual funds' management companies is a routine matter that occurs daily all over the world as well as in Israel. Banks, brokerages, insurance companies, portfolio managers and mutual fund management companies change hands every day - over the customers' heads and without consulting them.
Did Bank Leumi consult holders of Migdal insurance policies before selling control of the company to Italy's Generali? Did the Investec group consult with the bank's customers before selling it to Zadik Bino? Did the Safra family ask permission from First International Bank customers before selling that institution to Bino?
Of course not: There are regulators who oversee the banks and asset management companies, and the moment the watchdogs think one or another investor can buy the bank or brokerage - there's nothing stopping the deal. The banks' claim "Bachar decides" for provident and mutual fund customers does not hold water.
As far as the survey the banks are waving around goes, the one showing that the public is happy with the provident funds, is of dubious value: Since when are decisions about economic reform based on opinion polls? What tools does Joe Public have to decide what would be the best structure for the Israeli financial market?
If the banks have decided to cling to "public opinion" to prove what kind of banking sector Israel needs, we suggest they conduct another survey with questions like these:
1. Should bankers' salaries be cut in half?
2. Should fees be cut in half?
3. Should interest on overdrawn accounts be canceled?
We think we can guess the results of that survey? Would the banking sector CEOs be calling for implementation of its conclusions?