Israel's Banking Caste, Robbing You Blind

A new report by the Bank of Israel reveals that a surprisingly large and privileged group of workers benefit from the lack of competitiveness in Israel's banking industry.

Rather belatedly, the Bank of Israel on Monday published a report on the banking system, exposing figures that had been kept secret for years.

No, the figures weren't on executive pay or the banks' vast income from fees and interest. No, they weren't even on the billions upon billions the banks gaily handed out to tycoons who were friendly with the bank managers.

On Monday, the Bank of Israel revealed for the first time how the loot is divvied up: where the huge monopolistic rents the banks' "tax militias" squeeze from the public every day, month and year are really going.

During the past year, the people learned for the first time just how much the "tax militias" of the cellphone service providers are taking from them. In the first year after competition was forced on the cellphone industry, service prices fell by as much as 90% for everybody, not just for people with contacts in the right places. The public saved some NIS 5 billion. And even after the price cuts, the companies remained profitable, with cash flows amounting to hundreds of millions, sufficient to cover their investment costs.

In the cellphone industry, almost all the monopolistic rent passes to the companies' shareholders, first and foremost the three pyramidal business groups that control them. At the banks, however, after decades under a cartel with high entry barriers and barriers to switching banks, only a fraction of the monopolistic rent goes to the shareholders.

The Bank of Israel revealed figures that most people didn't know, showing that the banks have tens of thousands of workers who earn five and ten times as much as the average wage. It isn't just the top executives at each bank – everybody already knew how much they make. Billions are going to an entire caste. Call it the banking caste.

The supervisor of banks at the Finance Ministry had never published this information. Even when the Bank of Israel finally did so this week, it muddied the waters. On top of the pay data, which was broken down by group, there's a line in the report called "Pay Components and Associated." It isn't clear what this is for, and it amounted to a stunning NIS 3.6 billion. That's 35% on top of the total wage cost at the five biggest banks.

If we assume that most of that goes to workers with mid-level and high pay, that means the banks in Israel have somewhere from 15,000 to 20,000 workers earning NIS 30,000 to NIS 100,000 per month.

In the last two years, under pressure from the social justice protest and campaigns led by this newspaper, Israelis became aware of economic concentration: the ways that a handful of powerful connected people and thousands of their cronies bilk the public of millions each year. En route they have trampled the press, politics and the other watchdogs of democracy and the free market. But the true distortions in the Israeli economy are far deeper and wider. Alongside the economic-concentration clique is a long list of organized pressure groups, who through decades of lobbying organized the economy for their own greater good.

The banking system is one such giant pressure group. It isn't just a matter of a few dozen executives taking sky-high pay; there are tens of thousands of bank workers rolling over inefficiency and profligate pay onto millions of bank customers. A competitive environment wouldn't allow this.

Ah. There's one other thing. There are actually two castes of workers. One is made up of workers with tenure for life, who can only be fired with severance pay inflated by hundreds of percent. The other caste contains subcontracted workers, who earn a quarter or fifth of the pay and can be fired without notice.

After the start of the protest, people started to distinguish between businessmen who create value and businessman who exploit existing value. People started to see the difference between productive workers and workers who receive power and pay not necessarily because they're supplying a product and value to the customer and taxpayer, but by virtue of monopolistic and political power.

The public prefers to think this refers only to the workers at the Israel Electric Corporation or the ports. But there are a lot more pressure groups collecting inefficiency tax from the public.

The process of reducing economic inequality in Israel will begin by breaking up the concentration clique and the vast money flows to the top 1% and the monopolies. But the cost of living will drop, inequality will diminish and the welfare state will develop only after all the pressure groups are tackled and the government invests in protecting all workers, not just the strong and connected.

Nir Kafri