Taking Stock / The Public Interest Won

Yitzhak Cohen.

Not many Knesset members, certainly not in this term, can list an achievement in their resume like this Shas member can: setting the Bachar reform on its way.

Cohen is not widely known among the public. But a year and a half ago, he submitted a private bill to sever the banks from their provident funds.

Seizing the moment, namely of Israel trembling on the brink of financial meltdown, Cohen managed to sign 51 MKs onto his bill.

The Finance Ministry was embarrassed. Here was a dramatic economic reform being led by a mere MK. It was the Finance Ministry and the finance minister that were supposed to be the great reformers, not some Yitzhak Cohen.

Stung, the Finance Ministry set up the Bachar team, whose mandate was to reform the capital market. The panel was led by the treasury's director general, Joseph Bachar.

When Bachar convened his team for the first time, he had no clue what its results might be. He never dreamed, or so much as hoped, that the reform would be that dramatic.

A great guy, that Yossi

His banker friends were equally sanguine. They knew Yossi Bachar was "one of the guys"; they knew he came from their circles and would go back there. They knew all prior attempts to dent their power in the capital market had fizzled out into nothing.

They also knew the Finance Ministry had a long history of folding feebly before the bankers' might. It had done so twice before: once under Avraham Shochat, who blocked the Provident Funds Law, and once under Silvan Shalom, who shelved the reform and evaded confrontation with the bankers.

But the special composition of the Bachar panel and the history of the banking system had their effect. The conclusion the Bachar team reached was a shocker: separate the banks from their asset management holdings, their provident and mutual funds.

Even then, the bankers kept their cool. They knew they had very good friends up there at the Prime Minister's Office. A few phone calls to the prime minister would straighten out the matter, they figured. And in any case the prime minister didn't want to see his finance minister succeed.

But they had a shock here too. The director general of the Prime Minister's Office, Ilan Cohen, understood that his professional name was on the line. He sided with Yossi Bachar to push the reform through cabinet.

The biggest shock of all

But the biggest shock of all arrived Tuesday. The Knesset Finance Committee, which was supposed to be the weakest link in the chain, passed the test. It approved the reform, unanimously. The Knesset members had grasped the gravity of the issue and stood firm.

Naturally, many are disappointed by the vote's result. Most disappointed of all are the private brokers, who fear that as the legislation winds its way through the Knesset, the banks will be allowed to collect high distribution fees at their expense.

This is a good time to remind one and all that the Bachar reform was not established to hurt the banks but to create a more competitive structure for the capital market, to create the climate for objective investment advice and to reduce the conflicts of interest in the system.

So the brokers are upset: They had hoped the banks' profits would be rerouted to them faster. The insurance companies are also upset: They had also hoped to get their hands on a hefty chunk of the banks' profits.

The fight over the Bachar plan had seemed at times to be pitting the banks against the private brokers, but that was not the real fight. No, the real fight had been between the banks, the private brokers, the insurance companies and the customers.

And the customers won.

The bottom line: No more

The bottom line is crystal clear. From this day on, the banks may not own and manage provident and mutual funds.

It will take some time to divest, but there are transition directives for the interim period.

Once it passes the second and third readings at the Knesset plenum, it becomes the law. Unbendable, iron law.

The Bachar reform is just the first step in a process of financial reform, but it is a hugely important step. Its approval in Knesset will enable other changes to be instituted. Its ratification by the Knesset is a heavy blow to the dictatorship of the status quo, the fear of change, to the powerlessness to contend with the strongest pressure groups in the business scene.

If the bill is passed into law, Benjamin Netanyahu and Joseph Bachar will go down in history as the men who led one of the biggest reforms of the decade.

But it is not time to rest on your laurels, not even for a moment. The decision over distribution fees has been deferred for later and demands more debate. Many more reforms are needed in the banking and insurance industries to introduce genuine competition and enable customers to shift their custom at will.

The people of Israel have become inured to blows and disappointments from the government and Knesset members, as far as economics are concerned. For the first time, this week they can feel a sense of satisfaction. They won.