To Presentation (Hebrew)Supervisor of Banks Dr. Hedva Ber spoke today at the Capital Market Forum of the Radzyner School of Law at the Interdisciplinary Center, on the topic of “The reform in the banking and finance industry—conditions for success”.
During her remarks, Dr. Ber listed the reforms that have been agreed to by the Bank of Israel and the Ministry of Finance, as well as issues that the Banking Supervision Department is promoting in the area of encouraging competition. She called on the forum participants to begin work on implementing them. She also emphasized the tremendous importance of guiding the reforms in constructing a proper supervisory system that will oversee all of the financial entities that will be created as a result of the reforms, and ensure fairness to the customer and stability of the economy.
“We must build a proper supervisory infrastructure in line with the emerging financial world. This supervisory infrastructure must enable the growth of new financial entities, ensure that all entities are managed properly and fairly, and strengthen the economy’s ability to withstand financial shocks.”
Dr. Ber noted that the principles of the required supervision are supervision of all financial entities: risk-based supervision with respect to stability, and uniform supervision of consumer and fairness aspects.
“We don’t want to experience in the future what happened in the Global Financial Crisis of 2007–2009 that ensued deregulation measures around the world that were implemented prior to the crisis, We don’t want households and businesses to overleverage themselves with overextended loans, or that the “shadow banking” that will be created with the development of nonbank credit providers should take on exaggerated risks that will cause contagion to the entire economy and lead to a crisis in which unemployment increases and GDP is negatively impacted. We must therefore create a holistic and proper supervisory infrastructure.”
According to the Bank of Israel’s approach, the supervision over the entities operating in the credit and deposit markets must be divided into three supervisory “levels”:
1. Banks—depository institutions that will be supervised in a conservative manner by the Banking Supervision Department, similar to the current situation.
2. Credit and payment institutions with systemic importance—that are not depository institutions—which will be supervised by the Banking Supervision Department in a more lenient framework than the banks from the standpoint of stability. These entities will include entities that issue large volumes of bonds and provide loans.
3. Small credit and payment entities that do not have systemic importance, which will be supervised more leniently from a stability standpoint, but in a way that ensures consumers’ rights similar to the entities at other supervisory levels, by a designated regulator within the framework developed by the Baris Committee.
The Supervisor emphasized that the Banking Supervision Department is already creating the more lenient supervisory level at the Bank of Israel, and today published directives making it easier for credit card companies and clearing houses. The leniencies concern primarily a lowering of the capital requirements for credit card companies to a level lower than that of the banks, and a significant decline in capital requirements for acquirers, in accordance with the European Payment System Directive.