While thousands of policemen and soldiers stood face to face at Kfar Maimon with a hostile crowd threatening to break through to Gush Katif, in violation of the law, in order to thwart a decision made by the cabinet and Knesset, the Knesset Finance Committee was discussing a bill to reform the capital markets in line with the Bachar Committee's recommendations. At the close of the debate, with 17 of the 19 MKs present, the committee unanimously approved the bill for a second and third reading, which is to be held in the coming days. The committee debate and vote were an expression of sanity, which has special significance at a time when the rule of law and public order are facing one of their most severe tests.
The need for a fundamental reform of the capital markets, which would focus on removing the provident and mutual funds from bank ownership, has been discussed ever since the bank share collapse of 1983 and the subsequent Bejski Report. The reform was not implemented then because of the banks' enormous clout and the government's weakness. Subsequent crises in the capital markets - particularly the wholesale granting of loans at the end of 1993 for the purpose of enabling customers to buy into share-oriented mutual funds owned by the banks, and the huge losses this caused the public when the stock market collapsed in 1994, as well as the heavy losses suffered by the banks due to the easy credit they extended in 2001-2002 - also did not create the dynamic needed to implement a reform that would rein in the two major banks' almost complete control of the credit market.
When the Bachar Committee, composed of outstanding professionals, was set up last year with the backing of Finance Minister Benjamin Netanyahu, many doubted its ability to draw up the necessary reform, and they were even more skeptical of the government's willingness to confront those forces whose interests would be harmed by the reform - primarily, the major banks. But it turns out that the pessimists were wrong: Most experts have praised the committee's recommendations; the cabinet approved them without significant changes; a bill was drafted in line with the cabinet's decision; and the battle over its approval by the Knesset was ready to begin.
The Finance Committee discussed the bill for weeks, during which interested parties tried to remove the law's sting: Opinions were solicited from both local and foreign experts, the Histadrut and the workers' committees of the major banks were enlisted, and pressure was applied to Finance Committee members by members of the Likud Central Committee. But all this was to no avail: The bill was approved with only minor changes that do not detract from its significance, either in principle or in practice.
In the coming years, after the reform has been implemented, Israel's capital markets will be both invigorated and solidified. We can expect to see lower interest rates on loans, higher interest on savings, more competitive fees and improved customer service - and the banks' power centers will be weakened, while their conflicts of interest will be blunted.
The capital market reform is one of the most important of the past several years. Combined with progress toward resolving the conflict with the Palestinians, it could open up new horizons for the economy - provided that Israeli society emerges whole from the tests it currently faces in the diplomatic and political arenas.