The Bank of Israel is promoting the establishment of a social bank in Israel. Today, Supervisor of Banks David Zaken published guidelines on the process of licensing and setting up credit unions. According to the guidelines, the Bank of Israel will require such a bank to have shareholders' equity of at least NIS 75 million (whereas a regular bank requires initial capital of $100 million).
On the other hand, the capital adequacy requirement for the bank (the ratio between shareholders' equity and risk assets, chiefly the credit portfolio) is fairly high, at 15%. Only later will Zaken publish details of how capital will be defined and how assets will be weighted. "The capital requirements are very low, and there will be further relaxations. The cooperative bank will not at first have to abide by all the Basel III rules," Zaken said.
The social bank's founders will also have to present a business plan to the Bank of Israel covering the bank's activity and goals, and will have to meet computing standards. These include cyber policy, information security, and customer identification methods.
The aim of the document is to create a clear regulatory environment for setting up a social bank, in which the customers are also the shareholders. In such a bank, banking services are supposed to be cheaper than in a regular bank, since its main aim is to serve its customers, and not to maximize profits.
The regulatory framework mainly derives from the cooperative banking rules in the US, which are more lenient than those in Europe. The Bank of Israel estimates that the licensing procedure will take 24 months, as long as the social bank's organizers meet the various demands on time.
"The document we have published today makes the licensing procedure transparent. On the one hand, the conditions we have set out show that the requirements can be met, while on the other hand they show that stability is important, as the last thing we want is a credit union that collapses," Zaken said today. The document is open to public comment until the end of July.
It's not impossible
A group is currently organizing to set up a social bank, the Ofek group, headed by Doron Shorer. The group plans to raise NIS 100 million, but so far has raised less than NIS 7 million.
Asked, in the light of Ofek's figures, whether he thought a banking cooperative would eventually be set up, Zaken responded, "Our requirements are not impossible. Households in Israel have to leave their comfort zone. If they think they can obtain better prices and service, they should transfer their accounts to a bank on the cooperative model. If households take such a step, the chances of success will be good, and in the long term we will even see such a bank really competing with the big banks."
The Supervisor of Banks also said that there were other groups examining the idea with the Bank of Israel. "More than one party has approached us expressing an interest in setting up a banking cooperative," Zaken said. He added that an initiative that worked together with a similar body overseas would stand a good chance of meeting the conditions and establishing activity in Israel.
Published by Globes [online], Israel business news - www.globes-online.com - on June 16, 2014
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