The Tel Aviv Stock Exchange (TASE) insurance index rose last Tuesday by 2.5%, well above the market’s modest gains. The reason for the jump in stock prices was the recommendation of the Supervisor of Banks, Daniel Hahiatishvili, in an interim report of a team he heads, to grant banking licenses to non-banking financial institutions, including credit card companies.
The Bank of Israel wants to increase competition
The aim of this move is to increase competition in the banking system by those non-banking entities that will be able to collect deposits from the public and provide them with credit. The importance of implementing the recommendations means that insurance companies, which are already a dominant factor in the management of public pension and savings funds, are looking to buy credit card companies (which have also been “forced” out of “bank hands”) will now be able to use those companies to apply for and obtain a banking licence. also.
The report published by the Superintendent of Banks, which bore the dull name “The Interim Report of the Team to Study the Broad Lines for Granting a Banking License to Non-Banking Entities,” includes a series of key recommendations. The public will be able to place a deposit in Isracard or any other bank, and they will compete in the interest rates they offer. On the other hand, more entities will enter to provide consumer credit, with the aim of making loans cheaper for the public.
To facilitate the transformation of new entities into banks, it is proposed to divide the types of banks in Israel into two categories, “supervisory level 1 bank” which has assets of up to NIS 50 billion (all credit card companies, and other players in non-bank credit are included in this category), and “supervisory level 2 bank”, which has assets exceeding the relevant amount, mainly referring to the five major banks. The latter will receive stricter supervision, while the former – the younger ones – will receive supervision easements to encourage their activity. Among the reliefs provided to small banks, for example, is the exemption from the need to provide the full range of services to which banks in Israel are obligated, such as receiving a deposit in foreign currency, opening a current account, check services, and more.
Not just credit card companies
The banking supervisor and his team clearly indicated that they meant that credit card companies could request a banking license to become small banks.
Today in Israel there is only one credit company owned by an insurance company – Max, which was acquired by Clal Insurance. But for now, Menora Mivtashem is bidding to buy control of Isracard, while Israel Credit Cards CAL is still owned by Israel Discount Bank and First International Bank.
Moreover, the banking supervisor is aiming beyond insurance companies to include other non-banking companies that already offer credit such as Gamma Management and Clearing Company, which is already owned by Phoenix Holdings.
Thus, the Supervisor of Banks indicates that insurance companies enter into the competition to provide credit. But this will increase their power, which is also very cool.
In this context, it is worth reconsidering the recommendations aimed at reducing the power of banks in Israel. The Basher Committee, which was formed 20 years ago when Benjamin Netanyahu was finance minister, forced banks to sell the credit funds and savings funds they owned, along with billions of shekels of public savings in pension funds and other funds, which were later transferred to and purchased by companies. Insurance and large investment houses. The Strom Committee, which was established by Finance Minister Moshe Kahlon in 2015, with the aim of taking assets out of the hands of banks, this time targeted credit card companies. The natural candidates to acquire these companies were large insurance groups. After Clal Insurance acquired Max, two other insurance companies (Menorah Mivacthim and Wesure Global) are now competing to acquire Isracard.
Are insurance companies turning into banks?
So, if insurance companies become banks through their ownership of credit card companies, they will continue to receive progressively more and more money and financial assets beyond their original purpose, which is to sell insurance policies. The next step, as we mentioned, is to accept deposits and provide credit to the public through a license to operate as a bank.
The extent to which the Bank of Israel wants insurance companies to become banks can be seen from another recommendation that appears in the report. The Superintendent of Banks recommends that “holding companies that control corporate entities can simultaneously control a small bank.” Although the Bank of Israel acknowledges that this recommendation requires broad public discussion before it is implemented as an amendment to the legislation, the spirit of the matter is clear.
On the way to this goal, there is a carrot being waved around the salaries of senior finance executives, which currently cap the salaries of senior executives at banks and insurance companies. In order for the new entities to become banks, the Bank of Israel proposes that during the five years following the implementation of the recommendations, the restrictions of the Executive Salary Law will not apply to them. There is an incentive here for the executives themselves to implement the plan (and perhaps even to entice bank managers who want to participate in starting a bank and receive wages much higher than they are paid today).
It is possible that the result of all this will be that competition in banks will actually increase, and we will be able to deposit money with Isracard, or take a loan at an attractive interest rate from Phoenix Gamma, so the goal will be achieved. But if insurance groups become too large and powerful, it is not impossible that a new concentration problem will arise in the financial system.
Published by Globes, Israel Business News – en.globes.co.il – on October 21, 2024.
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