Governor of the Bank of Israel Prof. Stanley Fischer today went to the Knesset to take preemptive action. He is concerned, and believes that the social protest is coming closer to the banks. He sees pending populism, and wants to influence public opinion beforehand.
Last summer, the social protest skipped the banks. Although there were bankers, such as outgoing Mizrahi Tefahot Bank (TASE:MZTF) VP marketing Naama Gat, who with extraordinary obtuseness said, "I don’t see the social protest targeting the banks. Bank prices are reasonable;" but Fischer is a better map reader.
At the moment, there is little pressure on the banks, but Fischer hears the muttering, and he fears that the sacred social fury will turn on the banks, and he is standing alone at the gate. Fischer knows his flock. He knows well that the banking system cannot really streamline, he understands that pressure on the banks to cut costs and attempts to compel price cuts on them are liable to grievously harm their profitability.
Fischer is also looking at the calendar, and is aware that the banks will publish their financial reports for 2011 next week. The banks will report an aggregate profit of NIS 7 billion, and will disclose executives' multimillion shekel salaries. Fischer expects to see fiery headlines about abuse of the public, which is why he will explain that the banks' return on equity is not high in international comparison. This bothers him, which is why he gave his speech defending the banks today.
Fischer's message was clear and simple: there are no free lunches. You want stable banks that will provide high-level services? That costs money. If you press the banks, the whole economy will pay the price. "We must not think that populist thinking that it is possible to endlessly continue and lower bank costs without this affecting the stability of the system," he warns. "If you continue to claim that all the fees and interest rates are too high, the banks will not be able to raise capital, grow, and extend credit. We should remember that harming the banking system's profitability is a direct attack on all of us."
In his dry Anglo-Saxon manner, Fischer is right. Banks are a very fragile entity. Harming the banks will reduce the economy's ability to withstand shocks, and will cause immense damage to the economy. The problem is that in the current public dialogue, the price of a Pesek Zman chocolate bar - not exactly the healthiest snack in the world - in the supermarket in New Jersey, has become a symbol of the social protest. In this atmosphere, words of logic like the ones spoken by Fischer, are not heard.
Published by Globes [online], Israel business news - www.globes-online.com - on March 21, 2012
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