The International Monetary Fund (IMF) has severely criticized the Strum Committee. "In addition, some of the proposals, as discussed in this report, of the joint MoF-BoI Committee on Increasing Competition in the Banking and Financial Services (the Strum Committee), if enacted, could affect the financial system in ways that would be potentially destabilizing and have called into question the role of the (Bank of Israel) Banking Supervision Department in supervising nonbank credit institutions," the IMF wrote in a report dealing with banking supervision by the Bank of Israel.
"The reform (are) likely to have adverse consumer impacts in the short term… separation of all three credit card companies (as recommended by the Strum Committee, I.A.) could… lead to higher retail interest rates and fees… It will be important that… the reforms are sensibly staged and take full account of their potential implications for macroeconomic policy settings and financial stability in Israel," the report, published today, stated.
The report deals with supervision of the banks, but an important part of it refers to the Strum Committee the committee established by the Ministry of Finance and the Bank of Israel for the purpose of bolstering competition in banking services for households and small businesses. The committee is due to publish its final conclusions soon, although their thrust was already presented to the cabinet. In any case, the IMF report refers to the interim report published six months ago.
The IMF also severely criticizes the figures used by the committee, noting that the Bank of Israel 2015 Banking Supervision report paints a different picture of the state of competition in the households sector than that depicted in the Strum Committee's interim report. "The BoI's 2015 annual report… (shows) substantial growth in bank lending to the SME sector and to households… margins on SME lending have fallen… overdraft and credit card interest rates in Israel are low relative to other OECD countries."
The IMF report continues, "Accordingly, the competition problems to which the Strum Committee’s comprehensive reforms are addressed are less apparent, based on more timely data," adding, "It is critical that a reform exercise on this scale be based on rigorous analysis of the competition problem in Israel, incorporating the most recent data. It also requires a careful evaluation of the costs and benefits of alternative responses from the viewpoint of target customers, credit provision, supervisory arrangements and the stability of the banking system. There is little international precedent to guide some of these proposed reforms and, in important respects, the reforms appear at variance with policy initiatives elsewhere that draw on the lessons of the financial crisis."
In conclusion, the report states, "The BoI, through its representatives, should ensure that the Strum Committee’s proposals to reform the banking system are based on timely data, including cross-country comparisons, and rigorous cost-benefit analysis."
"The report is a severe one, which pulls the rug out from under the committee's feet," a senior banking system sources said. "The report is formulated politely in fine language, but it essentially says that the factual base on which the committee based its conclusions is incorrect," he added.
The Association of Banks in Israel said in response, "IMF experts are confirming what the Association of Banks told the Strum Committee in February, that the committee had chosen to ignore essential facts, and for some reason had negligently and unprofessionally decided to rely on outdated figures. For example, the committee astonishingly and outrageously ignored the price levels of banking services and an international comparison showing that these were cheaper than in the rest of the world, as well as up-to-date data about the level of competition in Israeli banking."
Published by Globes [online], Israel business news - www.globes-online.com - on July 6, 2016
© Copyright of Globes Publisher Itonut (1983) Ltd. 2016