Tal's New Proposal - Bank Sale With No Majority Stake

Governor Klein stands firmly behind strict banking supervision

The Supervisor of Banking, Yitzhak Tal has come up with a new idea for privatizing banks - no controlling stakeholders. "We have to think of a new bank model, one without controlling shareholders. This is accepted elsewhere in the world, but it does require a more sophisticated capital market," he told Ha'aretz.

Much of this is coming from the experience gained from privatizing Bank Hapoalim. Tal is currently working on the proposed privatization of the two remaining banks in state hands - Leumi and Israel Discount Bank.

The plan is to sell shares in the banks (both traded on the local exchange) through the bourse without determining any single shareholder in control of the business. The Bank of Israel is investigating the implications of having no controlling force within the bank, since this would be a significant change in the Bank's policy of many years.

The new policy derives from two factors - the lack of any candidate fitting the stringent criteria of the Bank of Israel, and the lessons from the sale of control in Hapoalim to the Arison-Dankner group.

Tal believes this sale contravenes the principles set down by the Brodett committee in 1995 which recommended against concentrating banking interests in the hands of those who own other business concentrations. In his opinion, this is what happened with selling the Hapoalim holding to the Dankner and Arison families, who have considerable stakes in various businesses in the Israeli economy. Nevertheless, Tal told Ha'aretz, he did not regret the privatization of Bank Hapoalim.

Tal is not alone in seeking a new approach in banking. Central bank governor David Klein takes a closer interest in the banking scene than his predecessor, Jacob Frenkel. Klein, who used to work for Bank Leumi, is more involved in significant decisions on banking supervision and, most recently, on instructions to increase provisions for doubtful debts among Israeli banks.

"I am certainly involved in the important decisions, and that is indeed one example of which I would be involved." he said. Klein points out that the mandate of the banking supervisor is to maintain the stability of the banking system for the benefit of depositors.

Referring to difficult and constraining decisions that the supervisor takes, Klein says: "If the supervisor takes an extreme stand, then of course this is not good, but I do not think the Bank of Israel's supervisor is too severe. The subject of supervision has become all the more important since the crisis in South East Asia in 1998. In my opinion, the management of macroeconomic policies is no less important than managing the solidity of the banking system."