The Bottom Line / Charge of the heavy brigade
The annual bankers conference took place this week in the shadow of a campaign for banking fees. The team set up by the Bank of Israel to look into the matter has wrapped up its work and submitted its recommendations to Yoav Lehman, supervisor of the banks.
The annual bankers conference took place this week in the shadow of a campaign for banking fees. The team set up by the Bank of Israel to look into the matter has wrapped up its work and submitted its recommendations to Yoav Lehman, supervisor of the banks. But Lehman is off to the United States to sort out the state's sale of Israel Discount Bank and he won't be able to look at the panel's findings for at least another two weeks.
The recommendations include cancelling the item fee (for each entry on a bank statement), bringing more banking fees into the scope of the central bank's attention, and cancelling loan handling fees. In place of the item charges, which seem to exist nowhere else in the world, the banks should be able to charge commission on previously "free" activities, such as withdrawing money from ATMs. Instead of loan handling fees, the banks could charge interest that clearly reflects their expenses, so the customer can see clearly how much his loan costs, and can also compare banks.
On the issue of disclosure, the former CEO of Mercantile Discount Bank, Moshe Gavish, had something to say. He suggested that the plethora of banking fees - some 250 in total - kept the customer in the dark over the price of banking activities, and allowed several fees to be charged for the same activity. Therefore, the banking supervisor should decide on a standard banking product, one to which most households relate, and each bank could price it how it likes. Then the customer could chose which bank suits him best, knowing the price loud and clear - just like buying yogurt in the supermarket.
However, even if this idea is accepted, there are still two basic unsolved problems in the banking system: the level of power concentration that reduces competition, and the banks' myriad of activities throughout the economy (from granting credit to control of the mutual and provident funds), which create a conflict of interest and even impact on economic growth.
The first problem one could attempt to solve through the supervisor's intervention, although the efficacy of this is not a sure thing. If the market structure stays as it is with the two big banks - Hapoalim and Leumi - continuing to dominate two-thirds of the sector, whatever the supervisor takes with one hand from fees, the banks will recover from interest and commissions elsewhere. Twenty years ago, all banking fees were regulated, which kept them all down to negligible levels, but the banks made their money through vast profit margins on interest.
The fees are but the symptoms, not the disease itself. Professor Marshall Sarnat, who took part in the conference (and was a member of the Bejsky Committee), was the only one who took the bull by the horns and spoke about the only solution to the problem, a solution the Bejsky Committee came up with in 1986 when it recommended the separation of the banks from the capital market. In today's climate, that means forbidding the banks from owning or managing mutual funds, provident funds or underwriting companies. In the U.S., after the crash of 1929, the Glass-Steagell Act of 1933 did just that. We are still waiting, 18 years on, for the same act.