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20.12.04
 
The Minister of Finance and the Governor of the Bank of Israel: Separation of the Provident Funds and Mutual Funds from the Banks is Essential for Competition
 
The Minister of Finance, Mr. Binyamin Netanyahu, said the following to the members of the IMF delegation in the meeting that concluded the delegation’s visit to Israel: “We are a government that supports the market economy. The two largest banking corporations, Hapoalim and Leumi, grew in strength as a result of excess government intervention. To create genuine competition in the capital market, the government must take the bull by the horns and dismantle this duopoly.” The Minister of Finance expressed his determination to implement the proposed reform in the capital market.
The Governor of the Bank of Israel, Dr. David Klein, in addressing the members of the delegation, stressed that increased regulation would do nothing to enhance competition; in some cases it could even prove to be detrimental to it, and it certainly could not serve as an alternative to competition as long as the large banks own the provident funds and mutual funds and control the underwriting market. Only the complete separation of the ownership and management of the banks from the provident funds and the mutual funds would allow the creation of competition in Israel's capital market.
The Director-General of the Ministry of Finance, Dr. Yossi Bachar, reinforced the view of the delegation in identifying the major problems of Israel's capital market-high concentration, conflicts of interest, lack of development of the market, and the dominance of the two largest banking corporations. Dr. Bachar went on to explain that the delegation’s view of the process of separation of the provident funds and mutual funds was not appropriate to the reality of the situation in Israel. The delegation’s conclusion was based on the assumption that the implementation of reforms in specific areas that are apparently already under way would serve to increase competition in the capital market and relieve its difficulties. Dr. Bachar explained that such was not the case-in fact just the opposite. The reforms in specific areas have been under discussion for the past two decades, but have never been put into effect. The inter-Ministry team, that incorporated all the elements responsible for the operation of the capital market in Israel, are of one mind that their proposed reform, based on the separation of the provident funds and mutual funds from the banks, is a sine qua non for proceeding with the other specific measures.