Several top experts are charging that a bank duopoly, consisting of Bank Ha’poalim and Bank Le’umi, is undermining the Israeli economy the way Japanese banks have undermined theirs. They note that our bankers’ failure as financial intermediaries – their squandering of ten years of savings – has cost the Israeli economy another decade of non-growth, in addition to an earlier decade of non-growth following the collapse of the manipulated bank shares in the eighties. No growth spells high unemployment, low salaries and serious social problems.

Twenty years after the bank shares collapse, critics add, it is time to implement the recommendations formulated in the famous Beisky report, and separate the banks from provident and mutual funds. Only such a separation can terminate the banks’ disastrous domination of financial markets. With their immense political clout the banks have managed to resist any meaningful reform. It is feared that this time around they will manage again to whittle reform down, or to finesse it, despite the most damning recent report by the state comptroller that reiterated their culpability, their involvement in severe conflicts of interests and their sheer ineptness as bankers who failed in their business of granting productive loans.

Defenders of the banks, chief among them Sever Plotzker, Yediot Achronot’s senior economic commentator, charge those who demand the separation of the banks from financial markets are anachronistic. Plocker points out, correctly, that the worldwide trend, even in the US where such a separation existed for over fifty years, is to do away with it and to enable banks to engage in universal banking. What Mr. Plocker neglects to reveal is that all the cases he cites are of banking systems in countries whose banking systems, unlike Israel’s, are open to real competition. Israel’s banking system is the most concentrated in the western world and its two largest banks are a duopoly that allows no real competition. The only way to break this duopoly is through the separation of the banks from financial markets. After this is done, and competition is safely established in Israel – hopefully in much less than the fifty years it took in the US – we can follow the salutary advice of Mr. Plocker and his likes and allow our banks to engage in universal banking too.

The other excuse offered by the banks’ apologists is the claim that no one will be interested in buying the provident funds. This is sheer nonsense. Eldad Fishman, of Tamir Fishman (one of the few real competitors of the banks) told recently that he was approached by at least five foreign bodies interested in them. Unlike the purchase of an Israeli bank, which is an extremely complicated matter and a questionable investment (seeing how unprofitable our banks are in their major business, loan giving, and how badly managed), the purchase of a provident or mutual fund is pretty straightforward and offers great business opportunities for those who know, unlike our bankers, how to manage money. Any halfway decent money manager could simply deposit the funds entrusted to him in US government bonds and earn more than the average yield of our provident funds, which charge a fortune for their pitiful results.

The most outrageous claim made by the defenders of the banks is that selling the funds will endanger their stability. Stability? Give us a break! What stability is there is a banking system that almost crashed the whole financial system in the eighties and since then almost went bankrupt at least twice? What stability is there in a system that a few months ago brought Israel to the verge of following Argentina or Japan? What stability is there in a system that accumulated so many bad debts – 60 billion shekels by a recent estimates – that it tops their 44 billion shekel capital?

Another ridiculous argument is the sudden appeal of those invoking market forces to deal with the banks. Let market forces affect the desired changes in Israel financial markets, they plead. Nice try. But how could market forces work in a market that is totally distorted by the banks utter domination of it. How could any change be affected unless government helps create a level playing field by removing the banks unfair advantages which government helped them acquire in the first place?

Absurdity upon absurdity, but the cake goes to the argument that the banks many failures pale in significance when compared to the failure of the Histadrut and the government in managing their own pension systems, and that therefore we should choose the lesser evil and stick with the banks. But why must we stick with failure, even a lesser failure when we could have good, successful pension funds assure a dignified retirement to Israeli workers. Why must we tolerate abuse by the banks just because they are not so horrible as the Histadrut or the government?

It is only by reforming the banking system that stability could ever be achieved. It is only by forcing our bankers to focus on real banking in a competitive environment that we could give them a true chance to succeed and prosper. Five decades of Israel banking is a long enough period to prove that the outrageous practices the banks adopted have mostly backfired and damaged them severely, while almost bringing ruin to the Israeli economy.

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