Bar-On Takes Aim at the Banks

No more excuses, they have to start lending, says minister.

The government is preparing an economic stimulus plan and soon the banks will be out of excuses not to lend money, Finance Minister Roni Bar-On said yesterday in a blistering attack on Israel's banking system.

"The banking system must unclench its fists," Bar-On said at a convention on economic matters yesterday. The government is readying a plan to secure lending to corporate Israel. "Then there will be no more excuses," he said.

The minister accused the banks of exploiting the crisis to undermine the alternative loans market that developed in recent years - the capital market. The government will not allow the banks to damage the non-bank market, or to hold back economic growth, Bar-On threatened.

Until just a few years ago the banks had been the only source of credit. But then companies began selling bonds to investors. Now, however, the financial market has all but shut down, leaving companies dependent on banks again.

If the banks refuse to lend, however, and if companies have no other recourse, many could fold - hence the economic damage the banks could cause.

Even though the Bank of Israel has cut its rate to just 2.5%, the lowest level in Israeli history, companies aren't finding cheap credit at banks, Bar-On said. What the banks have done is to compensate themselves for risk by keeping interest on their loans high, and lowering rates on deposits.

From diamond merchants to high-tech companies to neighborhood groceries, Israel's companies are finding it hard to borrow. Their representatives have been calling on the Bank of Israel to make the banks release credit, at lower interest rates to match the low rates that the central bank is charging. (The Bank of Israel lends to banks, which can lend onward to the public.)

Moving onto the "safety net" for pension savings that Prime Minister Ehud Olmert declared on Monday, Bar-On said: "It's no secret that I didn't like the idea."

He proposes that instead, existing regulation be studied. "Within six months we will institute a sweeping regulatory reform that will define investment tracks as a function of age," he said. The reform would require savers 60 and over to put their money in safe-harbor investments. That's how to protect them, Bar-On said.

If such a reform had been enacted beforehand, it would have obviated the need for "hysterical public debate on a safety net," he said.

Although arguing that the safety net proposed this week mainly helps poor and middle-class savers, it contains elements of clear social injustice, the minister said. Worst of all, in his view, is that there is no real reason to immediately execute the plan, which he called "an aggressive, ground-breaking tool" that had been prepared for other emergency scenarios entirely. But Prime Minister Ehud Olmert demands that implementation be immediate.