"Populism is an illusion that it's possible to get something for nothing, but there is no such thing," Governor of the Bank of Israel Prof. Stanley Fischer told the Knesset Economic Affairs Committee today. "It is impossible to increase public spending in the budget without paying for it. The deficit would grow, and we'd have to raise money."
Fischer added, however, that there were credit problems in two key sectors: small and mid-sized businesses, and in real estate. "Real estate is very sensitive. Contractors should start lowering prices, but not sharply. It's necessary to provide sufficient financing to lower prices, but not so far that they will stop building," he said.
Fischer also rejected calls for a reduction in bank fees and interest rates. "Israelis complain about their overdrafts, but there are no overdrafts in the US. The moment you reach minus - you're fined, and you have to request to pay the debt by credit card."
Fischer said that the interest rate on credit card debt in the US was 19.99%. "That's what you pay on an overdraft in the US. It's a different system, and that's how they do it there. I have no doubt that each case is different. That is why you can't simply compare figures between the Israeli system and other systems, and complain."
As for bank fees, Fischer said, "If you prevent the banks from making a profit in one area, they will create profits somewhere else. If we ban fees on something, they will find a way to compensate themselves by raising fees for another service."
"Israel's banks are not especially profitable"
Fischer said, "There is no dispute that the return on equity in the Israeli banking system is lower than the OECD average. Our banks are not especially profitable.
"You can't constantly contend that it's necessary to lower the interest rates and fees and expect the banks to continue to provide credit at a steadily falling price. Unprofitable banks cannot provide low-interest credit. We've created a populist delusion that it's possible to get something without paying for it."
Fischer said that the banks could become more efficient, but added that he did not consider Israel's banks to be particularly inefficient. "I get better service here than I received in the US," he said.
Published by Globes [online], Israel business news - www.globes-online.com - on March 21, 2012
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