Bank Fees Could Be Subjected to Price Controls, Says Supervisor

Israel's banks aren't exactly saints, David Zaken said. 'There is room for improvement regarding competition, efficiency and transparency,' he asserted.

Israel's banks could find their fees subject to regulation, if warranted, supervisor of banks David Zaken threatened on Wednesday. In fact, whole sections of the banking system could find themselves under government control, he said, speaking to TheMarker after a meeting of the Knesset Economics Committee on the "banking spread" - the difference between the interest they charge households on overdrafts versus the interest they pay on deposits.

Israel's banks aren't exactly saints, Zaken said ("not among the Lamed Vav Tzadikim" ). "There is room for improvement regarding competition, efficiency and transparency," he asserted.

David Zaken - Emil Salman - 03112011
Emil Salman

The banks supervisor, who works under the auspices of the Bank of Israel, said he does not only mean to look closely at fees: Other areas will be subjected to inspection, including the cost of bank guarantees. Meanwhile, the fees that credit card companies charge factoring companies are coming under central bank control because the supervisor noticed a problem there, Zaken said. (Factoring companies offer stores the full amount of customer transactions by credit card minus a fee. The factoring company gets the payments that would have gone to the store ).

"Sometimes it isn't necessary to wield authority. A word to the banks suffices," he added.

Meanwhile, in parliament on Wednesday, Zaken took a lot of arrows from Knesset members. Committee chairman Carmel Shama-Hacohen opened the discussion by saying the finance sector had dropped below the radar because attention had shifted to the mobile operators and price of gasoline. Now that these burning issues are being handled, he said, it's time to revert to the banks - that will be the hallmark of this winter session, he said.

"This discussion is just the opening shot," Shama-Hacohen said. "I don't think private member bills on the subject can be blocked. If people think Knesset members will just talk and talk and the banks' cash registers will continue to ring, they're wrong."

Zaken denied commonly voiced claims that households are subsidizing the banks' activities with companies: the banks' profit from households isn't higher, he said. It is true though that small businesses pay more for service, he qualified.

Israel's banks do not have higher return on equity than the global norm, "to put it mildly," Zaken said. "The return on equity in Israel is actually low." But why is that? Because the banks are inefficient, he says. Their operating costs are high and there's room to streamline.

Zaken has been at the Bank of Israel for 20 years and took over as banks supervisor this year. In March he handed down his first big decision: to limit the credit that banks could lend to Israel's biggest borrowers. The banks had been lending a tiny group of companies too much of their resources, he decided.

He has clear ideas about what needs doing and supports prohibiting business groups from owning both financial and non-financial (industrial, retail ) companies. Speaking in Knesset, though, he guarded his words - but stressed that the banks must become more efficient. Their return on equity may be the global norm but their costs aren't, he said.

People don't haggle

One major problem in the banking system is that it doesn't occur to the man in the street to haggle fees with the bank. Nor do they always realize just how much they pay their bank in fees because the banks aren't transparent, Ehud Peled, chief executive of the Consumer Council, told the Knesset Economics Committee Wednesday.

He can prove his point: A survey by Geocartography found that 79% of respondents do not negotiate with their bank over fees. Only 20% reported getting discounts on fees after haggling. Almost all discounts are to clients belonging to organizations or groups favored by the bank.