Insurance companies have long been more than just insurance companies. They control pensions, provident funds, they own credit institutions and now Harel wants Isracard? It is excellent for Harel. It connects excellently with the need to grow and it is synergistic. This strengthens it in all areas, it will result in 1 plus 1 giving 3. Think of a body that will also provide you with insurance, will also manage your pension, will also invest in its mutual funds, will also provide you with a credit card and will give you a loan. wow that’s it. This is much more than what the banks do in front of you and know about you. But wait, the fear of the banks led the government almost 20 years ago to establish the Bacher Committee headed by Dr. Yossi Bacher to split activity from the banks. So why is it allowed now?
Such a transaction must not be approved. It is dangerous for the economy. This will turn Harel into a giant gorilla stronger than all of them, even so Yair Hamburger the strong man in Harel has become a broad-armed octopus whose hand is in everything. Quietly, Hamburg is one of the most powerful people in the Israeli economy. So now he will also own Isracard. From his point of view it is a very smart move, from the point of view of the economy it is dangerous.
Along with Harel’s intention to acquire Isracard, Clal Insurance intends to acquire Max. This is a similar transaction – an insurance company, an insurance giant that also has great power in the field of financial management in the broadest sense, and has other tangential activities, entering one of the largest areas in the economy – credit cards and loans
So we checked with the experts. Bacher’s committee member Yoav Hellman, the director general of the Ministry of Finance at the time, Yarom Ariav, and with former finance minister Yuval Steinitz, who fought tycoons and centralization and wrote a book about it. When you hear Steinitz’s story, you will understand everything.
Bacher reform, remember?
The same reform that was led in 2005 by the late Dr. Yossi Bacher (died two years ago at the age of 65), the former Director General of the Ministry of Finance, approved a number of laws in the Knesset to reduce the concentration of the banks. This reform actually ended the takeover of the mutual funds by the banks and the provident funds, led to the encouragement of competition also in the field of pensions and challenged those who thought they would centralize the management of funds in the country.
The model was good, the thinking was correct, but the future – how to put it mildly, proved that it was not certain that all the eggs should have been moved into one basket. The insurance companies, who got ownership of the provident funds and trust funds, became monsters. Today, they not only own financial management companies and deal in insurance (Vostro, Real Estate, etc.), but also buy credit companies.
Harel, which plans to acquire the Isracard company in a merger that will delete the latter from the stock market, is taking another step in expansion, a dangerous step. A step that should not be approved. Such approval will give birth to the Bachar2 committee in 5-10 years. And meanwhile the public will pay for it.
The insurance companies are increasingly taking over the industry and the truth is that the Bacher Committee, which in the past waved at dispersal of centralization, passed it from hand to hand. From the banks to the insurance companies. Together with the late Bacher, the committee in charge of the capital market in the treasury participated in the committee in charge of the capital market in the treasury of Ill Ben-Shoule, in charge of antitrust Dror Strom, the chairman of the Securities Authority Moshe Teri, the deputy governor of the Bank of Israel Dr. Meir Sokoler and the supervisor of banks at the time Yoav Lehman. If you ask the members of the committee, the revolution they led caused the level of centralization in Israel to change from one end to the other. But sometimes, those who look at it from the outside see a completely different picture. Sometimes, he’s not sure she’s changed. She just transferred power. She crossed the road.
“Before the reform,” explains Lehmann, the bank supervisor at the time, who is actually on vacation in distant New Zealand. “There was a very strong control of the banks, while the insurance companies in the financial savings sector were negligible and also the activity through the pension arm in the bond and credit sector was minor. I mean mainly non-bank credit. This meant that the 5 banking groups were very dominant and held the funds, the advice. everything. There were conflicts of interest and also very high centralization. The 2 largest of them controlled more than 60%, so it’s clear that the concentration is small.”
But wait, we asked him. In the new lot you built, a significant part of the financial assets went to the insurance companies. “Yes, but the concentration is not high there either,” he explains. “As soon as the whole pie is divided, instead of between 5 when two are dominant and ten, or more – the concentration decreases. There is nothing to talk about at all. But more than that, the conflicts of interest have decreased. I look at what happened after our recommendations and what happened before. The banks created conflicts of interest in consultation processes . When we audited the banks, we found that they were recommending how to invest in their funds. They gave loans so that people could buy, and the people lost money. Suddenly, the stories of 1983 (bank stock crisis, AI) came back.”
And then you realized you needed a committee?
“The Bielski committee recommended doing exactly what we did, only 20 years later. There was another 1994 crisis on the way, of the trust and credit funds. And what happened in 2002/3 do you remember? Biased advice by the banks in favor of their funds and their funds. As if they didn’t learn from what that happened before. We stopped it. I said at the time that there was a risk to the stability of the banks. Not only in my hat as an inspector, of financial consumer protection, but also stability – I said that if we were moved by a financial crisis and then everyone would cry that ‘they drank from me, they took from me’, they would rightly say that the bank convinced and they will have to compensate. In this process I reduced the bank’s risk, I did not increase it. Today they understand that.”
What do you think about the Harel-Yishrachart deal? She shows what is happening here.
“One has to ask whether today, the insurance companies, have too much power. My answer is that I did not follow the market share, and still, I say – there is more competition today. Which is better, the competition of 2 large or 5 medium ones? Today, the chance of reaching a lack Competition is only if, God forbid, they commit criminal acts or agreements under the table not to step on each other’s toes, in violation of the antitrust law. I have no doubt that the concentrations and competition are at a higher level today. Such a deal does not change the overall picture in my opinion.”
“I fought the tycoons”: Minister Steinitz on the background of the rig
In order to check what it really did, we got to the person who replaced the late Bachar as CEO of the Treasury – the former CEO Yarom Ariav, who held the position after that reform, between the years 2007-2009. “The story of the transition from the banks to the insurance companies is an issue Big,” he recounted, recounting that time when he received the office after the reform. “The reform was still new then, and what bothered us were all kinds of issues like the consultants, like the pension consulting. We wanted to promote the issue of non-bank credit. But then the crisis came in 2008 and bothered me even more. I saw large withdrawals from the provident funds and worried about stability. This put the system under pressure. We described it as the ‘childhood diseases’ of the reform. At the other end were large borrowers and their situation was undermined by the crisis. In the end, we stood it well. But there were concerns that because we are shortly after the Bacher Committee, we are less practiced in these issues.”
You were worried that the transition to the institutional bodies would not go smoothly. And what do you think today? The power is in the hands of the insurance companies.
“We wanted to encourage non-bank credit, and that’s what bothered us. In the end, huge sums went into the institutional bodies every month. Bottom line – the committee resolved a very big conflict of interest of the banks. Fortunately, they knew how to sell the funds for large sums, because they understood what It will happen. It contributed to the banks’ balance sheets. In the end, 18 years later, today I can say – the financial system has remained quite centralized. Apart from One Zero, there is no real competition for the banking system here and the institutional bodies have gained great power. Very great.”
What do you think about the Isracard Harel deal?
“I am not in a position to express an opinion. There are sides here and there on this. There is a situation of concentration of power in the hands of the institutions. It should be considered. But I am troubled by the centralization of the institutions. It needs to be handled properly.”
To understand what centralization really did, we turned to Yuval Steinitz, the former finance minister (2009-2013) and soon – the chairman of Rafael. Why to him? Because he hates this centralization, and wrote a book about it. “The battle for gas”, he called it , after establishing the Centralization Committee in 2010 and fighting against the big companies, against the tycoons.
“I wrote a special chapter in the book about the centralization of the banks, which mentions how as Minister of Finance I established the committee,” he boasts. “I actually changed the whole law. I wrote in a book about Dankner Lebiev, Tshuva and more, so that they would understand what centralization does. Dankner controlled 20 companies, including an insurance company. I realized then that there was a serious problem.”
How does this manifest itself for you?
“I’ll tell you a story. One of the tycoons sat down with me in a private conversation and told me that centralization creates a big problem and they don’t really compete with each other. He told me, ‘You are a minister of finance with courage, you will solve the problem for the benefit of Israel’s economy.’ Then I started discussions in the treasury. I founded the The centralization committee, I took Haim Shani as the director general of the treasury. We found the concentration to be abnormal. What interested me was not flattering the audience, but the damage to Israel’s economy. I describe in my book how one of the tycoons tells me how he doesn’t compete with Dankner because he can beat him elsewhere, or his insurance companies won’t give him credit.”
Your law partially solved it.
“He dismantled all the large pyramids, today if you have a factory you cannot own insurance companies and vice versa. There is the most comprehensive, most principled description of the problem of centralization and how we solved it. Today it does not exist, there is no Dankner of 2010 or the Ofer brothers who own dozens Companies. The law was submitted in 2012, the legislation was completed in the next term. Yes, the centralization bothered me and bothers me to this day, but we solved part of it.”
All the seniors we spoke with presented opinions here and there. In the end, you take a step back and ask yourself how you look at this picture. Did centralization begin after the reform of the late Becher? Yes. Is it enough? Certainly not. Do the insurance companies have too much power? Yes, in an almost disturbing way. That remains (and remains a lot)? Almost nothing, until the next reform. Harel must not be allowed to acquire Isracard.