stanley fischer : capital market reforms in israel address by professor stanley fischer, governor of the bank of israel, to the knesset finance committee, jerusalem, 5 july 2005. * * * mr chair of the finance committee mk yakov litzman, members of knesset, ladies and gentlemen : this is my second appearance here before you, and i am pleased that the subject concerning which you invited me is also one of the most important to have reached the knesset in the recent past – – the reform of the capital market in line with the proposals of the bachar committee. let me clearly state at the outset that i support the reform proposed by the bachar committee. that is what i said a month and a half ago here when i first addressed you as governor, and again last week to the participants in the caesarea conference. when i say that i support the bachar committee reforms i mean the following : 1. i agree that the purposes of the reform have great impact on the financial system's ability to support growth in israel. these purposes are : a. to reduce the concentration in the financial system and to increase competition in the capital market. b. to reduce the possibility of conflict of interest in the financial system. c. to create significant alternatives to the banking system as sources of finance. 2. i favor separating the provident funds and the mutual funds from the banks as this is a way of achieving all three of the above objectives. 3. i favor allowing the banks, after the above separation, to give objective advice about, and to distribute life insurance, pension schemes, provident funds and mutual funds, provided we find a way to prevent the banks from abusing the power and dominance they hold owing to their extensive distribution network to give them an unfair advantage. in this context the proposed restrictions on bank fees are intended to ensure that this will not happen. 4. i am in favor of banks known as emerging banks selling their mutual funds and provident funds as is proposed for the big banks and operating within the same framework proposed for the big banks. otherwise the present potential for conflicts of interest will remain. we have recently heard from the emerging banks that they need the various funds to preserve their financial robustness. i believe that separation will not adversely affect their robustness ; on the contrary, after the implementation of the reform of the capital market, the developments in the financial system, and in particular in the banking system, will lead to the creation of incentives to the emerging banks to

central banks. the new zahav system has interfaces with other payment systems in the economy, which enables it to create synergy in the world of payments. in addition, by replacing it, we can upgrade the system's protocol to the new iso 20022 global standard, which will bring additional advantages to the entire economy, mainly by increasing the supply and variety of financial services available to the public. 1 / 2 bis - central bankers'speeches the zahav upgrade is consistent with one of the bank of israel's main strategic principles : positioning israel at the technological forefront with regard to the world of payments. obviously, there remains a long road ahead of us, but together with the implementation of the emv standard, the implementation of faster payments, the development of an infrastructure for digital checks, the removal of barriers to fintech firms, and other actions, we are definitely on the right track. as i noted, the upgrade of the system's protocol to iso20022 provides an opportunity with immense potential - for advancing it, improving the consumer's user experience for both business and private customers, adding an immense amount of tremendously valuable - and no less important, structured - information with every financial transaction. we believe that with the cooperation of the entire financial ecosystem in israel, we will properly implement the standard in a way that the changes and business advantages will be significant. 2 / 2 bis - central bankers'speeches