Bank of Israel Head Takes Aim at Banking Bills, Finance Minister

Governor Flug faults Knesset legislation, responds to Kahlon's attack on central bank official

Bank of Israel chief Karnit Flug and Finance Minister Moshe Kahlon.
Olivier Fitoussi

Bank of Israel Governor Karnit Flug on Monday took aim at populist bills now being debated in the Knesset as well as at Finance Minister Moshe Kahlon for supporting them.

Speaking at news conference following the central bank’s revised economic forecast (see The Ticker on this page), Flug faulted bills that would give unemployed people a grace period from mortgage repayments and extend the cooling-off period for Bank of Israel banks supervisors after they step down.

The issues came to a head last week when Kahlon, at a meeting of financial regulators, turned to Hedva Ber, the banks supervisor who reports to Flug and told her: “Look at the other regulators. If you did your work, Knesset lawmakers wouldn’t be advancing private members bills. Look at what you’re doing wrong.”

Flug didn’t name Kahlon directly but related to his criticism. “We examine legislation in a businesslike way and do professional and thorough work before we formulate our position. We consider their long-term implications,” she said. “Some of the bills take into account short-term considerations only.”

Under the mortgage legislation being promoted by Roy Folkman of Kahlon’s Kulanu Party, banks would have to grant the jobless a three-month grace period from interest payments.

“It is problematic legislation that interferes in the relations between bank and client,” Flug said, saying it could end up having the opposite effect of what the legislation intends by effectively making poorer borrowers high risks. “It could create a situation where the most vulnerable clients, who don’t have the steadiest employment, will end up paying more.”

She termed legislation extending the cooling-off period for bank supervisors to three years a “bad bill that will reduce the pool of potential candidates for the post to millionaires or pensioners” who can afford to be out of work for three years after stepping down.

Flug and Kahlon have clashed before on banking issues as the finance minister tries to meet campaign promises to reduce the cost of banking by lowering fees and creating more competition, while Flug worries about undermining the financial strength of the country’s banking industry.

The governor also weighed in on Kahlon’s fight with the Central Bureau of Statistics about how to calculate home prices from his Machir L’Mishtaken program in the consumer price index. Kahlon has also been battling to contain home prices but the CBS has refused to include the subsidized prices of the Kahlon program in its measure of home prices.

In response, Flug said price statistics should be left to non-partisan professionals decide. “It is very important that the methodology used to measure phone prices will be done by recognized professional criteria and the ones who decide on the criteria is the CBS,” she said, adding she thought the CBS’ policy was correct.

Regarding the Knesset committee formed to examine the issue of bank loans to tycoon borrowers, a panel popularly known as the “Fishman committee,” Flug reiterated the Bank of Israel’s position that the committee itself was acceptable but that the powers lawmakers are weighing – to authorize to summon executives of publicly traded companies and demand documents – would send a chill through the business sector.