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Committee regarding banks with high volume of activity


Supervisor of Banks Yair Avidan presented his position on banks with high volume of activity to the Knesset Finance Committee today.


The Supervisor emphasized that in his opinion, the economic analysis does not provide sufficiently significant, supportive, or established information to currently justify a change in the definition of a bank with high volume of activity.  In the Supervisor’s opinion, the analysis must be strongly significant and valid in order to make a decision that is so significant and irreversible in that it may harm property rights.


Therefore, the Supervisor noted that in his opinion, this is not the right time to change the definition of a bank with high volume of activity, due to the potential implications of such a recommendation, and that an extension of 3 years in the time window to make a decision is a proportional and appropriate approach. This time period will make it possible for reforms to be completed, market conditions to become more favorable, and will enable a more informed assessment of their effects on the competitive environment.


The Supervisor also recommended that insofar as a delay in the time period for making a decision is not within the Committee’s mandate, the definition of a bank with high volume of activity should not be changed at this time.


On December 8, 2022, the Supervisor sent the Committee a letter in which he presented his position as a minority opinion relative to the position of the other Committee members.  The letter includes reasons both for and against changing the definition, as well as his final recommendation as presented above.


The following are selections of the Supervisor’s reasons against changing the definition, as presented today to the Knesset Finance Committee:


Market indications – There are no clear and significant indications regarding developments in the state of competition in the credit market (activity of the large banks, medium banks, credit card companies that have been separate from the banks, market share, or pricing) based on which there would be room to recommend changing the definition of a bank with high volume of activity.  Although we must examine changes in the credit market as a whole, the impact of credit card companies on the volume of activity and competition in the credit market is not significant, and certainly does not change the existing competitive conditions for market share or the other relevant components of the market.


The nature of the period and the timeframe from the date of the legislation – We must pay a lot of attention to the relatively short period that has passed since the credit card companies were separated from the banks, the nature of the separation, and the nature of the COVID-19 period that had a significant impact on overall economic activity. By definition, the pandemic had an effect on the activity of the separated companies as well, as they needed to deal with both the separation and the pandemic at the same time. These aspects should provide an indication that the market has not yet stabilized in its long-term competitive posture.


Irreversible decision – Given that the basis for a positive and clear decision to make such a change is not solid, alongside the significance of this decision as largely irreversible, it is worth examining the proportionality and reasonability of the decision under such terms of uncertainty, alongside the significant impact it will have to Discount Group’s property rights.  Under the current conditions, it is certainly worth considering the existence of a less harmful way, at least in terms of the short–medium term, such as extending the time frame for making the decision regarding the need to change the definition.


It is difficult to find a direct economic benefit that would justify the separation – An examination of the overall credit market in general, with particular focus on the impact of separating LeumiCard (Max) and Isracard can point to very high variance between the two companies, from different sources—the nature of the separation from the parent company, the ownership structure and business strategy derived from it, previous specialization, the realization of credit failures, and more. Based on these observations, the difficulty and uncertainty are too great to allow for an assessment of the economic impacts that would result from the separation of CAL, should it take place, and certainly of their amount.


Legislative criteria – The implementation committee set a criterion that Discount Group clearly met, which should support its procompetition activity.  Just meeting this criterion should support not changing the definition, despite some criticism that the criterion does not fully reflect the other effects on competition.


The separation is expected to lead to a loss of efficiency – The separation is expected to lead to a loss of synergy and the advantages of scale inherent in the group aspect that could lead to a loss of the existing and potential competitive advantages in the existing and developing financial markets.