Karnit Flug: Increasing competition in the financial system
Remarks by Dr Karnit Flug, Governor of the Bank of Israel, at the cabinet meeting on
increasing competition in the financial system, Tel Aviv, 13 June 2016.
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I would like to express appreciation for the serious work done by the committee led by Dror
Strum.
The financial system is a complex system, and has unique characteristics that require
indepth through regarding how reforms and changes are to be carried out. I am happy that in
the end, after tremendous effort by all those involved, we have succeeded in formulating
recommendations that will benefit consumers and maintain the stability of the system.
The changes that we have agreed upon are very significant, particularly when taken as a
whole. These changes, alongside initiatives led by the Bank of Israel and the Banking
Supervision Department-such as building a credit register, promoting greater efficiency in the
banking system, and promoting technology and innovation in banking-will in the coming
years create an advanced banking system that is more competitive in the retail and small
business areas.
It is very important, and we have agreed to this with the Minister of Finance and his team,
that we now focus on the implementation of the reforms, and in general avoid promoting new
legislative initiatives in the field of banking or support such initiatives. The change that we are
proposing here is a sizable change, joining changes that have already been made, and it is
important that we manage these changes responsibly and enable the system to get
accustomed to them and prepare for them.
It is important to emphasize that Israel's professional and stable banking system is an asset
to the economy, and is essential in order to support the financing of the economic activity of
households and small businesses. In contrast with banks in the US and Europe, the Israeli
banks withstood the Global Financial Crisis very successfully, remained stable, continued to
function during the crisis, and saved the Israeli economy from having to pay the high price
paid by many other countries around the world in terms of loss of output, unemployment, and
a heavy burden on taxpayers in rescuing failed banks. Therefore, it is important that the
changes be made in an intelligent and measured manner, while maintaining the stability of
the banks and the financial system.
The agreement that the supervision of the credit card companies will remain at the Bank of
Israel is very important, in order to prevent a regulatory gap between banks and credit card
companies in the provision of credit. As the credit card companies have the potential to
become a significant factor in the provision of credit to households, such a gap could have
created pressure for lowering the standards for providing credit in the entire financial system.
I attributed tremendous importance to the fact that alongside the implementation of the
reform being presented here today, we will soon complete the legislation for establishing a
financial stability committee, which will firmly establish the cooperation and coordination
among the various financial system regulators. The committee will monitor, provide early
identification, and handle risks to the financial system before they are realized.