Israel's Banking Reform Would Significantly Ease Process for Receiving License

Bank of Israel plan borrows from recent banking reform in U.K.

Meirav Arlosoroff
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Banks supervisor Hedva Ber
Banks supervisor Hedva BerCredit: Ofer Vaknin
Meirav Arlosoroff

The banks supervisor of the Bank of Israel has drafted a plan designed to lower the entry barriers for new players in the country’s banking sector in order to increase competition.

Hedva Bar submitted the draft to Finance Minister Moshe Kahlon and the members of the Strum committee for increasing bank competition.

The plan would significantly ease the process for receiving a license to enter the bank sector. However, it does not lower the central bank’s capital requirement for new banks.

The plan borrows from a recent reform of the banking sector in the United Kingdom. The changes enabled 12 new banks to set up shop in Britain over the past five years, after 150 years during which no new banks were launched.

One crucial measure is reducing the uncertainty that currently plagues potential banks. Under Bar’s plan, any potential bank would receive an answer within three months as to whether it would be granted a license to enter the Israeli market. This license in principle would then enable the bank to raise the necessary capital and bring in investors.

Israel’s credit-card companies, once they separate from the banks, would be able to receive a license in principle immediately. This would enable them to advance quickly toward the actual license. All they would need to do in order to become an actual bank is to improve their liquidity ratios and their computing systems.

Bar’s reform would also permit banks to cooperate with one another in building computer systems, due to the recognition that this costs hundreds of millions of shekels. Under the plan, banks could buy computing services from a third-party provider.

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