What Worries the Bankers

The banks are facing a frontal attack as two important commissions are about to complete their work on service charges and the system's structure that will include recommendations that have the banks very worried.

The banking system is under fire. The banks are facing a frontal attack as two important commissions are about to complete their work on service charges and the system's structure that will include recommendations that have the banks very worried.

One commission, set up by the Bank of Israel, has basically completed its work. This is the one headed by Mordechai Fein, which at the beginning of this week submitted its report to the Supervisor of Banks, Yoav Lehman. The report recommends ways to protect the most oppressed sector of the banking population - households. The banks take the highest services charges and interest rates from them and they are captives of the centralized system (the two largest banks account for two-thirds of the system). This means that transferring their accounts to another bank will not improve their conditions.

The Fein Commission's recommendations discuss cancellation of 10 particularly annoying service charges and supervision over 50 others, meaning that the banks would not be able to raise those charges without the supervisor's approval. The current account transaction charge, which is NIS 1.21-1.28 per transaction, will be canceled. This is a scandalous charge that does not exist in any other banking system throughout the world. Another example of an outrageous charge is the "deferred payment fee" - a practice invented by the credit card companies two years ago in order to collect 34-39 agorot for every monthly payment for purchases paid in installments. One of two other fees also will be canceled: the monthly management fee or the annual membership fee charged by the credit card companies, since they represent a double payment for the same service.

The commission will also forbid the charging of a fee for "preparing documents" or "opening a file," which are methods of collecting additional sums from customers who take out loans, renew a loan, or extend their credit limit. The commission will force the banks to offer their customers a "basic account" that will include a limited number of banking services, with the monthly fee for these services, NIS 12-14 , to be supervised.

The second commission, set up by the Finance Ministry and headed by director-general Yossi Bachar, is examining two fundamental problems in the banking system: the high level of centralization, which causes a low level of competition, and the broad range of financial products with which the banks deal (granting credit and underwriting and controling the mutual funds and provident funds), causing conflicts of interest and even harming economic growth.

The Bachar Commission essentially deals with reforming the capital market, and is expected to recommend the separation of the mutual and provident funds from the banks. There will be no more artificial Chinese walls and no more external representatives on the boards of directors who just fulfill the wishes of bank managers (as evinced by the State Comptroller's report, which was issued yesterday), but rather a total sale of these assets and their removal from the banks' control.

This commission is also supposed to deal with the service charges and interest rates as well as to handle the legislation of changes to the distorted pricing structure so that every banking transaction will carry only one fee, and not several, and every loan will have one effective interest rate, with no registration fees or other tricks. This is the only way the customer will be able to figure out how much he will be paying, and the only way he will be able to compare one bank with another.

Many commissions have already submitted their recommendations to the finance minister and nothing ever happened. This time, however, Finance Minister Benjamin Netanyahu understands that only the removal of the provident funds from the banks will facilitate capital market reform, because then there will be non-banking bodies that will be able to compete with the banks and extend large-scale loans to business enterprises. As a result, the cost of capital will decrease, its availability will increase, and the allocation of funds will be more efficient, leading to faster growth in the economy and more stable banks with fewer conflicts of interest.