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Judy Maltz: Bank Shots

The little guy is the banks� main cash cow. Why?

Bashing the banks is a favorite national pastime in Israel. No reason to pity the banks, though, as they deserve all the bashing they get.

There is probably no better word than chutzpah to describe Bank Hapoalim�s latest attempt to milk its faithful customers. Indeed, until the country�s biggest bank decided to raise what�s known as the "line commission" by 6 percent, most Israelis had no idea this bank fee existed. The reason it�s called a "line commission" -- and this goes to explain the public outrage that followed Hapoalim�s announcement -- is that it�s a flat rate you pay for every line that appears on your bank statement.

Most Israelis, for example, had no idea that they pay a commission each time they withdraw money from an automatic teller machine. Officially, they don�t pay for the actual act of withdrawal. But they do pay 1.28 shekels (almost 30 cents) for every line that appears on their bank statement reporting such a withdrawal.

Hapoalim is not the only bank to charge a "line commission" -- they all do. But it happens to be the biggest, and that�s why it probably thought it could get away with raising it. As it looks now, it�s only a matter of time now until the others follow suit. Incidentally, the 6-percent rise in the "line commission" alone is expected to boost Hapoalim�s revenues by 10 million shekels (about $2.2 million) this year.

The reason Hapoalim cites for its decision to raise the "line commission" is new expenses incurred as a result of more stringent reporting requirements issued by the Bank of Israel, which regulates the banks. But was there no other possible candidate, aside from the little guy, to pick up the bill? Indeed, the banks� financial reports indicate clearly that their main cash cow is the little guy, that is, your average struggling household. In 2002 (they haven�t yet published their reports for 2003), the Israeli banks earned a total of 2.3 billion shekels ($500 million) before tax. That reflected a profit of 3.1 billion shekels in the household sector, minus a loss of 800 million in the business sector. Instead of having the little guys subsidize the big guys as usual, couldn�t the banks just raise the interest or commissions they charge the big guys, who in any event enjoy cheaper rates than you and me?

Or how about picking up the bill themselves? Indeed, would it be too much to ask of the banks, or at least their senior executives and directors, to forfeit part of their bonuses, astronomical salaries and dividend handouts and use that money instead to finance their new expenses?

A recent report published by the Shalem Institute in Jerusalem may help explain why bank bashing is such a popular sport in Israel. The report found that the share of revenues the Israel banks make from commissions is about double the share earned by their American counterparts, 2.5 times the share earned by their British counterparts, 6 times the share earned by their German counterparts and 40 times the share earned by their Swiss counterparts. The Israeli banks charge about 200 different commissions, most of which have never been heard of in the advanced Western world.

And what they don�t make on us in commissions they earn from us in exorbitant interest rates charged on that other famous invention, the "overdraft" account, which the banks are only too happy to encourage us to utilize.

It�s no mere coincidence that the interest rates and commission tables of all the big banks look virtually identical. The Israeli banking system is effectively a cartel, which explains how it�s able to exploit the little guy to such an extent.

According to the textbooks, there are two ways of dealing with a cartel: You either break it or regulate it. The way to break the banking cartel in Israel would be to allow other companies to provide some of the services rendered by the banks, such as credit. If that�s not feasible in the immediate future, then the regulatory authorities have no alternative but to step in and say no -- and make them stop taking the little guy for a ride.