The state is expected to provide deposit insurance to new banks, if any are established. Sources inform "Globes" that the Ministry of Finance recently reached understandings with the Bank of Israel to the effect that if a new digital bank is set up in Israel, it will be given a starting benefit by the state in the form of deposit insurance.
The aim is to bolster the public's faith in the new bank and to help the bank raise money from deposits, since the public is liable to be wary of depositing savings in a new bank that has not yet built a reputation. The Ministry of Finance declined to comment on the report.
Under the Strum reform it was decided that a joint team from the Bank of Israel and the Ministry of Finance would propose a joint plan for introducing deposit insurance in Israel. The Bank of Israel even made relaxations of capitalization rules for new banks conditional on deposit insurance being implemented. A short time later it emerged that the Ministry of Finance opposed such a mechanism. Financial system sources say that setting up deposit insurance is a complex, broad and sensitive matter involving the question whether it is right for the state to support failed banks.
At present there is no official deposit insurance in Israel, but in practice the state has supported the customers of banks that failed, as in the instance of the collapse of Trade Bank in the previous decade. The Strum proposal was to create an official, clear mechanism for assisting customers of an insolvent bank.
The issue of rescuing banks has become all the sharper after the global financial crisis a decade ago in which failed banks were given almost limitless aid. Further questions that arise are the cost of insurance and how it will work, up to what limit it will apply, who will regulate it, and in general how a bank that fails will be dealt with.
In the end, the Ministry of Finance and the Bank of Israel reached a compromise whereby new banks would receive a starting benefit in the form of a solution for deposit insurance. A general solution to the problem has yet to be formulated. As far as the Bank of Israel is concerned, the interim solution is acceptable, and for its part it will agree to relaxations concerning capital requirements for new banks, even though deposit insurance will not apply to the banking system as a whole.
The Bank of Israel Banking Supervision Department is determined to move forward on setting up a new digital bank, almost 50 years after the last time a new bank was founded in Israel. There are several such ventures at one stage or another of negotiations with the Banking Supervision Department. One of them is led by Check Point Software Technologies Ltd. (Nasdaq: CHKP) chairman Marius Nacht and Delek USA CEO Uzi Yemin.
Published by Globes [online], Israel business news - www.globes-online.com - on May 21, 2018
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