Israeli Treasury Denies It Promised Regulatory Freeze for Banks

Speculation aroused after Central bank chief Karnit Flug hints at a deal to break stalemate on Strum reforms.

Olivier Fitoussi

The Finance Ministry denied on Tuesday that it had agreed to give the banking industry a break from any further regulatory changes or reforms, supposedly in exchange for winning the Bank of Israel’s consent to banking-competition measures presented to the cabinet this week.

Treasury officials said the only undertaking Finance Minister Moshe Kahlon made was to coordinate any new reforms in advance with the central bank. The Bank of Israel said the promise was only made in reference to a series of private members’ bills in the Knesset and not any government initiative.

Speculation arose Monday after Bank of Israel Governor Karnit Flug told the cabinet that the central bank and the treasury had agreed “for now to focus on implementing reforms and to avoid new legislative initiatives in banking or to support such undertakings.”

Her remarks came after the two sides ended a long stalemate on the banking-competition reforms being proposed by the government’s Strum committee. Their centerpiece is a plan to force Israel’s two biggest banks to spin off their credit card subsidiaries in the hope they become banks.

“We have received interest from foreign investors regarding the credit card companies,” Hedva Ber, supervisor of banks at the Bank of Israel, told a news conference on Tuesday. “But the talks are preliminary and we don’t know what will come out of them.”

She did not name the banks but said they were European and American. Foreign players have shied away from Israel until now.

Ber said there could be room for more banks and likened Israel to Denmark as a small country with a few large banks and many small ones.

Meanwhile, at a meeting of treasury brass and 25 business leaders, Bank Leumi CEO Rakefet Russak-Aminoach warned that excess regulation was strangling Israeli banks. Unless regulations were eased so banks can boost lending, investment and economic growth would be undermined.

Reuters contributed to this report.