On the Altar of Image

The power of standing up to banks regarding their fees is concentrated in the Bank of Israel's banking supervision department - but Yoav Lehman prefers to dodge the issue.

Yoav Lehman has paid the price for Bank of Israel Governor Stanley Fischer's weakness. The leak of an audit report was only the pretext. Fischer saw the ongoing erosion of his public stature and decided to do something - something that would prove to the public that he is strong and fearless. Thus, with lightning speed, he (de facto) ousted the supervisor of banks, on account of his "managerial responsibility" for the leaked report on Rony Hizkiyahu, the candidate to replace Lehman as supervisor.

But if we are talking about "managerial responsibility," where does it end? Perhaps it should end with the head of the system, the governor himself, who is also responsible for the supervisor?

The governor's weakness stems from the "bystander" method he has adopted for himself. He is a sort of UN representative, who does not respond to grave economic events, but makes do with issuing excellent reports on the Israeli economy and cheering on the excellent economic leadership of Ehud Olmert and Abraham Hirchson. From his perspective, everything is fine. Everything is wonderful.

This might be a good public relations tactic to use overseas. It is an easy way to attract investors who do not read the papers. But we know the truth: all of Israel's economic problems, the annual busting of the budget (each time for a different reason), the low rate of labor force participation among the Arabs and ultra-Orthodox, the reforms that are going nowhere, the privatizations that are not taking place, the suffocating bureaucracy and the serious problems with the banks - for example, their larcenous fees and interest rates.

The negotiations with Bank of Israel employees over correcting distortions in their salaries also prove that the governor is worryingly weak. He and the bank's managing director, Yaakov Danon, have not stood firm on either basic principles of management or ethical standards. After all, the exorbitant salary and retirement benefits at the Bank of Israel are a clear case of corruption, though admittedly, via legal means. Thus until this problem is cleaned up, there will be no peace. The issue will continue to haunt them.

But they prefer to sweep everything under the carpet and not confront the union. Instead, they are proposing an immoral compromise, which will leave the distortions in place. And the public sees this and understands that the bank's leadership is weak and frightened.

The Bank of Israel has also demonstrated astonishing helplessness on the issue of bank fees. There is a plethora of evidence indicating that the banks are operating as a cartel. Every economist at the Bank of Israel knows the banks are increasing their expenditures on wages, employees and "the good life" out of all proportion to what is generally accepted in the business sector - because the banks know that they can always raise fees and widen interest rate margins for individuals and small businesses.

In 1987, a great mistake was made. At that time, Galia Maor - today the CEO of Bank Leumi - was serving as supervisor of banks, and she appointed Meir Het to a committee that was examining bank fees. And, wonder of wonders, Het decided that the vast majority of these fees should be removed from government supervision. Ever since, the banks have been having a party with their fees, which have risen constantly, and have just hit an all-time high after the three major banks, one after another, once again raised their fees.

It was sad to hear Finance Ministry Director General Yossi Bachar and Israel Securities Authority Chairman Moshe Terry explaining how Israel Discount Bank had put one over on them when it began charging the public a fee for purchasing mutual fund shares. This violates the "spirit" of the Bachar Committee's recommendations on capital market reform, the two moaned - and Discount executives burst out laughing.

Lehman also sat on the Bachar Committee. He also agreed to allow the banks to charge exorbitant distribution fees without inserting one simple limitation into the law: a ban on collecting any additional fees from the public.

Lehman, like his predecessor as supervisor, did not take forceful action against the banks over their fees. And it is truly amusing to hear that this week, he proposed putting several fees under the supervision of the Ministry of Industry, Trade and Employment. That ministry has no professional staff capable of standing up to the banks. All the power is concentrated in the Bank of Israel's banking supervision department - but Lehman preferred to dodge the issue.

The governor of the Bank of Israel also dislikes confronting the banks. He never dreamed for a second of ousting the supervisor of banks over a major issue of principle: the banks' cartel-like control over the fees and interest rates paid by individual clients. But what did he oust Lehman over? Over "managerial responsibility" for leaking one small and not very important audit report.