For years, Israel was considered a third world country in regards to excessive bureaucracy and regulation. How much third world? In 2014, it was ranked in the global regulatory burden index in the 116th place, not respected, in the world (out of about 200 countries). Since then the position has improved significantly and jumped to 46. Yes, the state is trying to move into the 21st century in everything related to easing the bureaucracy (for example: digitization, the possibility to carry out actions with the government ministries via the Internet, instead of physical arrival, or the possibility of sending documents by email instead of by fax). And it affects the location for the better, which is definitely important of course.
But regulation and bureaucracy are not the same thing. It should be easier to carry out operations with the government service and we should also remove unnecessary supervision, which only makes it more difficult for the public. The recent governments also promote the ‘Regulatory Authority’ – a body whose purpose is to improve government supervision by creating procedures that will force the government ministries to explain why the new regulation they intend to impose on the public is even needed, meaning that they will have to explain why the new regulation is required. So the government is indeed debating what powers to give it (decision and enforcement or just a ‘consultation duty’). But this is a welcome step. The last government also acted to facilitate small businesses and this is also certainly welcome.
The state wants to establish another bank supervisory body – why exactly?
And this brings us to the long-standing struggle between the Treasury and the Bank of Israel – the Ministry of Finance wants to establish another supervisory authority for the banks, to encourage competition. One will be the ‘supervisor of the banks’ and the other will be the ‘supervisor of the competition’. One is supposed to make sure they don’t collapse in the next big financial crisis, and the other will oversee everything related to competition provisions. The explanation in the Treasury is that the Bank of Israel supervises the stability of the banks, meaning that they do not collapse, but it is less interesting to him and he has less promoted competition between the banks. For reference: a new bank has not been established here for decades (and now the digital bank One Zero has been established) and the competition in the field of banking in Israel is poor. In the end – all banks do the same thing, and provide the same service, but at much higher prices than in the world. There is really no competition for the customer in Israel.
Now it seems that the Bank of Israel is no longer opposed to this as in the past and the committee to examine the structure of financial supervision in Israel may succeed in bringing in two supervisory bodies for the banks. Wait, so a new supervisory authority is being established to supervise less? You know, more offices means more positions, more jobs, more money that needs to be paid to people. But the basic question is, will more supervision even be useful for anything? Can more supervision reduce supervision? Doesn’t more supervision ultimately mean more quarrels, conflicts, power struggles, hand bending, more regulation and bad bureaucracy, like the best public service – the one that brought Israel to the same bad ranking in the world indices?
Bottom line, it is not certain that another authorization to supervise the banks is what will lead to competition between the banks. If you want competition, you have to really work to increase competition – lower barriers, allow even smaller entities to become banks, make it easier instead of harder.
And just to mention – already today there are quite a few authorities: there is the Insurance and Savings Capital Market Authority, the Securities Authority, the Competition Authority and more. So it is likely that we will see some kind of merger between these authorities as part of that process of establishing the new regulator (and what about the pension funds? Will these remain outside the new supervision?). But do we really need so many supervisors? Isn’t it better to have one comprehensive body that everyone knows how to talk to and work with, a body that will issue all the relevant instructions, and above all – not be difficult? We are already imagining the debate between the two supervisory bodies, when the decision of one will contradict the decision of the other and then what? Oh, of course – another committee will be established to resolve the dispute between the various supervisors…
The response of the Ministry of Finance: “The committee to examine the structure of financial supervision in Israel, headed by the Director General of the Ministry of Finance Ram Belinkov, is holding meetings and no decisions have yet been formulated.”
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