Slightly more than one year ago, the Minister of Finance and I established a committee to examine increasing competition in the financial system (the Strum Committee). About a month ago, we were here at the Cabinet and we all commended the Committee for the serious work that was done as well as the success, of all the Committee members, in formulating recommendations for the good of the consumers and in maintaining the system’s stability.
Since then, there has been fast-paced work done to turn the recommendations into legislation, in a short amount of time and in a collaborative effort, and I want to commend all the partners—Strum Committee members, Ministry of Finance officials, Ministry of Justice officials, and representatives of the Bank of Israel.
The changes established by the law, and primarily the recommendation to separate the two credit card companies from the large banks, alongside initiatives led by the Bank of Israel and the Banking Supervision Department—such as establishing a Central Credit Register, providing an outline for setting up completely new banks, promoting increased efficiency in the banking system, and advancing technology and innovation in the banking system, have created in recent years an advanced banking system and more competition in the retail and small business sectors. It should be remembered, with that, that financial system change requires fundamental, long term, and thought-out processes, as well as some patience—the benefits of the reform will be obtained by the public gradually, over time.
In the bill presented here today, there are still some issues that require additional fine-tuning. One of them is the ownership of Shva (Automated Banking Services Ltd.)—the company that produces the interface between credit card issuers and acquirers. In general, marked changes have been made recently in the area of payment systems, led by the Bank of Israel. These changes include opening the Shva protocol and establishing the terms of access to the payment systems, which will allow the entrance of new players into the system. The steps carried out by the Bank of Israel will respond to the requirement to reflect the needs of the various entities in the market. In addition, these are significant steps requiring material changes by Shva itself, and a change in ownership at this time may delay the advancement of such steps. I am convinced that with good will, and with the recognition that it is important that the promotion of these issues is done by agreement, on the basis of professional entities’ assessments, we will be able to reach agreements on the legislation process, both on the issue of Shva and on other issues that are still in disagreement.
With regard to the risks inherent in the reform, as some of the Ministers in the Cabinet meeting a month ago noted, there are two main risks with which we will need to deal: the first is that more banks, and more small banks, and more nonbank financial intermediaries, means a higher risk of collapse of a financial intermediary; the second is the trend of rapid expansion of credit to households. Therefore, it is important that increasing competition in the credit market, which is important on its own, be done carefully, with attention paid to developing risks and with appropriate supervision of the new credit providers. The Financial Stability Committee, about which a legislative memorandum was published about two weeks ago, and which will institutionalize the collaboration and coordination between the various regulators on the financial system, will have an important role in ensuring the monitoring, early identification, and timely handling of risks to the financial system. Against the background of the changes expected in the financial system, there is particular importance to completing the legislation for setting it up as soon as possible.
Another complementary and necessary step is the promotion and improvement of tools to deal with a bank facing difficulties and a failing bank. This includes deposit insurance. These tools, which have become very common worldwide, among other things after understanding the lessons of the financial crisis, will provide a safety net in the case of a bank encountering difficulties, such that the adverse impact on depositors, the financial system, and the economy will be moderate.
I can assure you that the many steps we are taking in the area of competition are being taken responsibly, after serious and professional consideration of the possible costs and benefits deriving from each step, and this is a critical condition for the success of the steps while minimizing the risks existing in the process.
In conclusion, the steps in the bill will lead to a material change in the level of competition in the financial system. It is important now to focus on implementation of the reforms, and to give them time to have an impact. These are major changes, and we also need to allow the system to adjust to them and to reach the new equilibrium that will be created as a result of the changes and reforms.