| In the last few years the process of very Small Banks merging with larger ones, or ending their banking activity, accelerated and was almost completed. In the course of this process six banks were purchased by large banks and merged within them, two other banks stopped their banking activity and relinquished their licenses, and the license of one bank was revoked. |
| The process of merger and closure of very Small Banks took place with the active support of the Banking Supervision Department, who after analyzing the situation many years ago came to the conclusion that those banks made hardly any contribution to competition in the banking industry, whereas their risk profile was relatively high. Due to their small size--with equity between a few million shekel and NIS 100 million--they were unable to acquire and maintain the managerial, technological and control infrastructure required in modern banking, and this limited their development and adversely affected their profit. Without increasing their equity and business activity very significantly, it was impossible to rectify the situation and overcome these shortcomings, despite the relatively high input of supervision which the Bank of Israel allocated to identifying deficiencies and faults in them and to monitoring the attempts to put them right. |
| The collapse of the Trade Bank as a result of embezzlement accelerated the process, as it clearly demonstrated the severe damage that resulted from the realization of the risk and the importance of the absolute size of equity for purposes of absorbing such unexpected losses. Also the Banking Supervision directives and required standards recently published abroad and in Israel-such as the Revised International Capital Framework (Basel II) of the BIS in the area of the management of credit and operational risks and allocation of capital to cover them, as well as directives related to the prevention of money laundering, to information technology, and advanced management of liquidity risks--all these made additional investment necessary, which was beyond the capability of the small banks to undertake. All the above made it easier for the Banking Supervision Department to convince the owners of the small banks that it was to their advantage to merge with the larger banks or to cease acting as banks. |
| The Banking Supervision Department closely accompanied the sensitive and complex process of very small banks leaving the banking industry, to ensure that it took place without undermining their stability and without creating panic among depositors, and in a way that preserved depositors' rights. These objectives were achieved in full, and it is appropriate at this point to mention the responsible and professional manner in which the banks, their owners and their managers operated. |
| This process is in line with a broader process in Israel and abroad of consolidation in the banking industry via mergers and the purchase of banks--among them larger banks too. In this context we can mention the merger of mortgage banks with the leading banks in their banking groups (Hapoalim–Mishkan; United Mizrahi–Tefahot), as well as the purchase of Investec (Israel) Bank by the First International Bank. These took place to take advantage of clear economies of scale and scope expressed inter alia in lower costs of production, management and marketing in providing banking services, and in a better risk diversification in financial intermediation. |
| Small banks that closed or merged |
| December 2001 |
Carmel Mortgage and Investment Bank purchased by and merged with Union Bank |
| June 2003 |
The Maritime Bank of Israel purchased by and merged with Bank Hapoalim |
| March 2004 |
Bank Polska Kasa Opieki Tel Aviv (Bank Pekao) purchased by and its banking activity merged with that of Bank Hapoalim |
| March 2004 |
Global Investment Bank (B.H.) ceased its banking activity and relinquished its license |
| June 2004 |
Israel Continental Bank-minority share purchased by Bank Hapoalim and its banking activity merged with that of Bank Hapoalim |
| February 2005 |
"Gahelet" Gmul Hisachon Lehinuch, banking activity purchased by and merged with Otsar Hahayal Bank |
| April 2005 |
Kupat Haoved Heleumi Leashrai Vehisachon Be-Netanya Aguda Shitufit-banking activity purchased by and merged with Otsar Hahayal Bank |
| April 2005 |
Israel Bank of Agriculture license revoked |
| July 2005 |
Euro-Trade Bank ceased its banking activity and relinquished its license |
| Other banks that were purchased or merged |
| December 2003 |
Mishkan–Bank Hapoalim Lemashkantaot was merged with its parent bank, Bank Hapoalim |
| June 2004 |
Investec (Israel) Bank purchased by the First International Bank |
| December 2004 |
"Tefahot" Israel Mortgage Bank was merged with its parent bank, United Mizrahi |
| Banks that failed |
| April 2002 |
Trade Bank closed following embezzlement by an employee |
| August 2002 |
Industrial Development Bank started gradually realizing its assets due to losses incurred and problems of liquidity |