"Shlomo Eliahu was one of the first Israeli businessmen I ever met. It was at 2 am on a flight to New York. I was very impressed by him," Governor of the Bank of Israel Prof. Stanley Fischer told the Knesset Finance Committee, which is discussing the so-called Marani law today, angrily rebuffing Eliahu's charge that he was effectively nationalizing the banks.
The Marani law, officially Amendment 13 to the Banking (Licensing) Law (5741-1981) regulates a bank with no controlling core. Amendment 13, passed in 2004, stipulates that the Bank of Israel must approve a holding of more than 5% in a bank. Shlomo Eliahu is the largest private shareholder in Bank Leumi (TASE: LUMI), with an 11% stake, which he was allowed to keep under a special permit, on the condition that he would not use his extra holding to try to win control of the bank.
Fischer added, "We're not discussing the Eliahu law, he is not just another person, and there will be more banks without a controlling core. This law is intended to deal with other banks, not Bank Leumi. It's quite sexy to say 'nationalization', but this bank belongs to its shareholders, who receive profits. So please stop saying nationalization. There is no nationalization here. The bank does not belong to the state."
Earlier, Eliahu told the Finance Committee, "The Bank of Israel's job is to maintain the stability of the banks. So what are you doing, letting the regulator appoint the board of directors? That's nationalization. The problem isn't Bank Leumi or Shlomo Eliahu. It's unacceptable that the owners have no rights.
"This law was never applied. We don’t know what is wrong and what is right. Now the government comes along and wants to make a fix. I don’t understand. This isn't a law against Eliahu, but a law that takes away rights. They're telling shareholders who invested the best of their money that they don’t have the right to nominate a candidate for director. They're telling us, 'You're not worthy to nominate candidates,' even though the Governor has the final authority to approve or reject the candidate. If the candidate is unacceptable - he's not approved. So what are you going to change? There cannot be a situation in which we invest the best of our money but cannot appoint people."
Fischer also said that the Ministry of Finance had concluded that it was necessary to change the way bank directors were appointed, "so that the directors would work for the good of the shareholders, rather than the majority shareholders."
As for the criticism about government intervention, Fischer said, "If a bank is not being managed properly, the government will have to do something in the end. We saw what happened in 1983. So it's very nice to say that the government hasn’t put in a shekel. It sounds nice, but there is also a greater interest in management of the bank, because if there is no money to repay deposits, the state will have to do something. That is why it is our duty to be certain that the method of electing directors is for the good of all."
In 1983, the share pegging scandal at the banks nearly caused the Tel Aviv Stock Exchange (TASE) to crash and an economic debacle, resulting in government intervention and nationalization of the banks.
Published by Globes [online], Israel business news - www.globes-online.com - on December 21, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011