Recently, a public debate as to the necessity of Israeli Banking Reforms has arisen. However, before discussing the proposed reforms – we shall in fact examine and analyze the reforms we have witnessed this past decade
The Brodet Committee – reducing the amount of real assets held by the banks
The first reform which we would want to consider is the one implemented after the Brodet Committee submitted its reports about some 15 years ago. The committee’s main recommendation was reducing the total amount of real assets (non financial) held by the banks. Naturally, the Chairpersons and CEO’s heading the banks protested against the decision and yet exercised it in full accordance with the law.
His Successor would have to oversee the upcoming reforms. Stanley Fischer.
There is no doubt that in retrospective we can surely say that the commission’s recommendations proved to be wise and beneficial. The sale of non-financial assets contributed to the boost of the entire capital market and reduced economic centralization.
After the Brodet reform, the main and most influential reform in was the Bachar reform. While considering and analyzing the implications of the Bachar reform we must take into account the massive amount of regulatory instructions issued by the regulators during the period after the Knesset had approved the recommendations turning them into a law.
It is worth noting that a significant part of the reform’s unwelcomed results should be attributed to the fact that the members of the Finance Sub-Committee simply did not anticipate the behavior of investment houses, insurance companies and banks facing this reform. That is also alongside some cases of excessive regulation on one hand and the lack of regulation on the other (I will provide further examples in later articles).
The goals set forward by the Bachar Committee
The Bachar Committee had several major goals the first of which was to increase the activity of the capital market in particular and the entire Israeli economy in general. The second goal was to improve the service provided to the public, while at the same time to decrease the dependence between the general public and the banks. The third was to boost the IPO market on issuing bonds and equities.
Another important goal was to create an environment that would bring international investment banks to act in the Israeli capital market. Decentralization of the Israeli Capital Market was a key goal of the Bachar committee.
As far as the results were concerned, some of the goals weren’t achieved, the first of which is the service provided to the public in terms of pension and provident funds. Nowadays, the general public have no actual address they can turn to in case they need service. Furthermore, the investment houses and insurance companies are not prepared to offer the public sufficient customer service.
For example, a client who wanted to withdraw his money from a provident fund before the creation of the Bachar Committee, had to go over to the investment officer in his own branch with the entire operation taking not more than a few minutes. Today, when a client wishes to perform the same action he would have to send letters to the relevant asset managers and sign some documents without being given proper and oral counseling. Sometimes, the customer has to go through an entire “Via Dolorosa” before he gets his money. The system that was once clear – became more and more complicated.
The Bachar law intended giving the banks the authority to give advice regarding all pension products to the general public. This part of the recommendations of the committee in general has not occurred. There are several reasons for that: starting from the delays having to do with the establishment of a pensionary clearing-house and at the same time, the decision to stop the banks from entering the pension advising field due to the fear that the advisory pension market will be controlled by the two large banks.
In the following article I will address some other aspects regarding the results of the Bachar Committee in greater detail.