Bank Reform Bill Passes, Separating Credit-Card Companies

The Knesset passed on Wednesday a law to separate credit-card companies from banks in order to promote more competition, Globes reported.

The banks will be required to divest of their credit-card operations within three years. The legislation also removes obstacles to the entry of new competitors and provides formative protection for new and small financial entities.

The banking reform was adopted on the recommendation of the Strum Committee for Increasing Competition in Banking and Financial Systems, established 18 months ago by Minister of Finance Moshe Kahlon and the Bank of Israel, and headed by former Antitrust Authority director-general Dror Strum.

In addition, the bill encourages the operation of a credit card clearing consortium, to reduce clearing fees for small businesses; enabling a second lien for an asset; and establishing a price comparison engine.

Reform Committee Chairman MK Eli Cohen said, “This is one of the most important reforms, if not the most important reform, to be approved by the 20th Knesset. Legislation to increase competition in the banking system has an historic significance since, in 47 years, no new bank has been founded in Israel. Developing a competitive banking system is vital to economic growth and to the stability of the banking system. Opening Israel’s highly concentrated financial sector is important for the increasing of competition in the banking system and will be directly beneficial for bank customers, who will turn from captive customers into sought-after customers.”

Prior to voting, deliberations on the bill had grown quite heated, and Bank of Israel Governor Dr. Karnit Flug made a special appearance in the Knesset in part to protest the treatment of BOI representatives at the hearings.

“The Bank of Israel’s employees are public servants coming here to present their professional opinion in order to contribute to the legislation process, and thereby contribute to making the bills passed by you into better laws, for the benefit of the public.

“Lashing out at them, when they say things you do not want to hear, insulting and offensive words, raising your voice – all of this has not deterred them, but could eventually deter excellent professionals from coming here and telling you what they, as professionals, consider to be the truth. This will certainly not improve enacted laws, and does not add respect to you or to the Knesset. Please take this into account,” Flug said.

Supervisor of Banks Hedva Ber walked out of one of the hearings after MK Erel Margalit accused the BOI of serving the banks and not the public.

In another squabble, MK Cohen threatened that “if the Bank of Israel continues living in a bubble and thinking that it is above the law, we will take away its responsibilities.” That too triggered a walkout of Bank of Israel representatives.