His 91-year-old mother Yair Avidan, the supervisor of the banks, does not understand exactly what he does, but knows that he works at the bank. From time to time she asks him: “Yair’la, what’s going on in the banks?”, and he answers her that everything is fine and says: “When they lose, mother – you will also lose, and when they make a profit – you will make a profit”.
This statement, which came to reassure the elderly mother that her money is in safe hands, is very far from the day-to-day reality experienced by bank customers. When the supervisor’s mother puts money in a bank deposit, not only does she not earn, she even loses because of the zero interest she receives. On the other hand, the banks in Israel make a lot of money precisely because when they make money, the public does not necessarily make money.
Partners only in losses
Avidan was called to the matter of the “deposit taker” following the protest that flared up quickly and discussed exactly this question: “Why do only the banks profit from the increase in interest rates?” In response, he sent them a restrained letter in which he made it clear that he expected them to pass on the interest rate increase to the customers. The reviews were not long in coming. Instead of taking a determined and bellicose approach, it seemed that the inspector was once again politely asking for what should have been demanded immediately, including the imposition of sanctions on those who improved the instruction. Once again, the feeling arose that the bank supervisor cares more about the banks than the customer base.
Those who know Avidan know that this letter characterizes him: calculated, restrained, weighing words, advocating understatement. He is a big believer in the phrase “the slow-moving will come in time”, and upholds it not only professionally, but in practice. At the age of 63, he managed to walk the Israel Trail, climb Mont Blanc and walk the Camino Primitivo. “You mustn’t stop walking,” he says. “You have to maintain the right rhythm. I prefer to manage life with a reasonable effort over time. This is also related to my role as a supervisor – to persist in thinking, to be relevant, professional, leading and innovative.
“The state world is very important to me, especially in the contemporary culture in Israel. It seems too civilized to the public, but the supervisors understand very well what I mean. There is a difference between a directive and an expectation, but in practice it will be almost the same action.”
It’s just that an expectation cannot be enforced – it can be ignored.
“We are dealing with climate change, and there is an expectation for the system to be ready and prepared for extreme scenarios, and everyone works with all their energy. Not everything needs regulation. The great success will be for the system to independently learn to be fair. Regulation enters in places where the system has not been able to fulfill what is expected of it. They They understood the hint very well, and by the way, it is doubtful whether there was a market failure here.”
Aren’t the banks supposed to raise the interest rate on deposits?
“In the economy, there is demand and supply, and money has a price. The post-Corona Israeli system is very liquid, and I expect to roll the cost of interest to the benefit of the customer, but even in other developed countries in the world, due to the excess of liquidity, the situation is even worse than ours. Despite this, my opinion is not rested on the matter, and we Looking at it with a broader view – to see consumers and customers at the heart of the matter. The banking system will have to understand that it provides service to customers, supports them with the services it offers and does not take advantage of their behavioral biases. I want my mother and yours to know that they are getting the best product that suits them My mother is 91 years old, and I am worried about how to find the solutions that will protect her. My mother was given 0.06% interest by the bank on a monthly deposit. She was sure that the bank was protecting her, until she realized that he took advantage of her innocence.
“The things you say are extreme. The bank gives customers confidence by guarding their funds. My mother is not looking for a return, she wants to know that she can get her money when she needs it. But we want to transfer the power to the consumer, for example in the open banking reform, which came into force on summons and allows the customer to use his information asset and give it to third parties.
“The same with the reform of mortgages, which gives the possibility to compare products in different banks. We intend to publish the interest rates as well as the credit that the banks give for deposits as well. This is the place to say that the customer also has responsibility for his financial management. We are facing three major challenges: financial education, literacy digital and information literacy”.
a new language
For those who do not master the banking idiom, we will explain that the inspector means three areas in which the average Israeli customer repeatedly fails. Since we never received a financial education, that is, we are not one of those whose parents educated them to handle money wisely and be wise consumers, we do not understand basic economic terms, and when we encounter a wall of obscure and tiring words, instead of improving our attitudes towards service providers, protecting our money and even making a profit, we run away from there And let them do whatever they want with our money.
Digital literacy means knowing how to operate through applications, computer websites, an information monitor and an ATM in a bank. The younger generation does it naturally, but the adults are dragged behind and wait hours for a telephone answer, which is also not always welcoming. Information literacy is our ability to search for data, know how to read and analyze it and make informed decisions. Again, too few of us have ever read their bank ID, for example a collection of data that can determine whether our loan application will be accepted or refused.
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the big brother
To the question “Is the Bank of Israel responsible for the financial education of the citizens?” Avidan replies that the responsibility is not his, but the State of Israel’s. “We are happy to help, but the authority is not in our hands. With the local government, we did a project that focused on the Arab, ultra-Orthodox society and the elderly. In my view, the critical mass should come from the Ministry of Education.”
78% of the activity in the branches is going digital, and entire populations are not in the game. My mother is unable to operate an app.
“There is a significant challenge here. At the branch level, today there are 1,000 branches in Israel, when at the peak there were 1,200, which means a 20% decrease. The banking infrastructure for the elderly is available but complex. There is a voluntary agreement of the banks to give priority over the phone and reach the homes of the elderly.”
Why do you only “expect” the banks to roll over the interest rate to the customers and do not demand that they do so, Otherwise they will be punished?
“This is because regulators in the developed western world do not interfere with financial banking instruments, certainly when there is a wide range on deposits for different periods. When there is a uniform price, they say that there is coordinated banking. When there is a range, that is also wrong. After all, you can set interest rates, be the ‘big brother’ , to manage everything and completely sterilize the competition.”
The problem is that there is no real competition here, because the number of banks is very limited.
“In banking systems that have hundreds or even thousands of banks, such as the USA and the UK, the interest rate rollover is lower than in Israel and the central bank does not intervene. In England, four banks hold 68% of all accounts and there are thousands of banks there. It is true that when there are more players, there is more competition, and it is important to us that more banks enter the system. The last bank established before One Zero was in 1978. There is another digital banking initiative on the table that will be launched in the coming year.”
One Zero managed to shake up the market a bit.
“Definitely. It makes the traditional banks train their muscles for the competitive environment, because there is a ‘potential disruption’ here. There are many hundreds of digital banks in the world, a minority of them are profitable, but they arise, develop and create an innovative model. Even if it takes time for them to reach the break-even point, They make the other banks respond.”
Two years have passed since the credit cards were separated from the banks following the conclusions of the Strom Committee – a move that came into effect at a problematic time in dealing with the corona virus. Can it be crowned a success?
“The Strom committee created a positive and important momentum for competitive thinking between the banks. Two credit card companies were separated, and the separation of the third as a discount company is being examined. Due to the effects of the corona virus, it will take time to measure absolutely how much this has affected, but some indicators are certainly showing progress.”
Refueling the mortgages
Two years have passed since the Bank of Israel’s decision to remove the restrictions on its mortgage mix and increase the prime interest component. In retrospect, you also have a hand in fueling real estate prices.
“We wrote one of the most conservative approaches in the world in regards to mortgages in two respects: the maximum amount of the loan in relation to the value of the property and the amount of repayment in relation to the salary. We have the lowest amount of arrears in the mortgage payments in the world, and during Corona the banking system spread out the payments.”
The banks did not volunteer to spread her mortgage payments, but the state helped them. People took out mortgages at prime interest rates, and when interest rates in the economy rise, their mortgages also jump up. They will lose everything they have, if they don’t meet the repayments, not the banks – they won’t be hurt.
“The stability of the banks is important. We assure our customers that those who need to receive their money will receive it, unlike in Lebanon, when people come armed with a gun to the branch to receive the money that belongs to them. Happily, we are far from there. When the level of inflation and interest rates rise, the level of risk increases, and failure is possible will cost a small amount. It hurts every household that goes into failure. That is why the system performs sensitivity tests, in order to make sure that throughout the days of the loan, each customer will know what the first payment will be and what the total monthly payments will be, taking into account the interest rate and inflation forecast, and then the household will be able to examine whether this puts him at risk”.
That doesn’t solve the equation. that when the interest rate rises, the prime payments on her mortgage rise. Did people not expect the interest rate increase?
“I’m not defensive. But on the other side of the coin, not the whole world is Japan, where for decades the interest rate has been 0. What might not have been at the best time and was important was the release of the prime limit in 2020 – we saw and I still see it as a positive thing, because It allowed households a loan with greater flexibility.
“On her representative mortgage of one million shekels, the prime component increased by another 10%, they took another 100,000 shekels in prime interest, which means that a household will pay about 200 shekels a month, but thanks to this he got an apartment compared to the alternative of not buying an apartment or paying rent. I want To emphasize that the main factors in the increase in housing prices are the low supply, the bureaucracy, the public transport infrastructure and the accessibility of the periphery to the center. In the economic world, demand produces an increase in prices.
“There is always a failure when taking credit. Today, the failure is mostly low, when the borrowers sell the property themselves, and it is done more conveniently and at a better price. When the interest rate environment rises, the level of failure will rise, perhaps to the extent of 5,000-10,000 apartments. As the inflation environment returns to its target, it will be allowed “.
Bank profits are huge.
“The rates of return are definitely high, and they are quite similar to what we see in European and American banks – some following the post-Corona crisis, and some from taking advantage of the inflation and interest rate environment. 60% of the capital of the banking system is linked to an index – it is not at the expense of the citizen.
“When interest rates rise, the banks benefit from a higher producer surplus that is not passed on to the customer. It is possible that the environment of inflation and interest rates will rise, failure rates will rise and credit losses will rise. I predict that the yield rates will drop from 155 to around 12%. This will be reflected in benefits, services, commissions and prices for the consumer And when the banks distribute dividends, the citizens will also benefit from them through their investments and through their pensions.”
I am quoting you a headline that was published in one of the sixth columns: “Yair Avidan conveys a message to the system, a message that was well received: he wants to be finance minister in the Netanyahu government.” Do you want to be finance minister?
“I am not a political person, but a professional, doing my job, trying to do the best possible in my shift, even in the world of inclusion, fairness and accessibility. I am close to the halfway point of my term. I will do my best to fulfill my mission. When I received the request to serve as a supervisor, I was already On half pension. I hesitated. My eldest son and my wife told me: ‘You have been talking for many years about giving and donating – this is your chance to contribute. Go to Jerusalem and do what is necessary.'”
Isn’t that jumping to a political position?
“Absolutely not, but ‘Never Say Never’ is about nothing. I also didn’t think I would play the role I play today. Whatever will be will be.”