Measures to support the separation of the credit card companies
The Bank of Israel’s decision on Leumi Group holding shares of the company that is purchasing Leumi card.
It was clarified that such a purchase is not consistent with the spirit of the Increased Competition Law. Despite the possibility that such a holding could create a commitment on the part of Leumi Group to the success of Leumi Card, the decisive consideration in the Bank of Israel’s decision is its desire to ensure the implementation of the purpose of the law, which is intended to create separate financial entities that will not hesitate to become a significant competitive factor. It was therefore decided not to allow Leumi Group to continue to be involved through the holding of shares of the designated company that will purchase Leumi Card.
This decision is a further step in a series of measures adopted by the Banking Supervision Department to advance the separation of the credit card companies. The following is a list of the main measures taken by the Banking Supervision Department to encourage and enable the credit card companies to become generators of competition, and even to become banks should the purchasers be so interested:
1. Leniency in capital requirements—to a level of 8 percent core capital adequacy and 11.5 percent total capital. These rates are lower than the requirements for the existing banks;
2. Leniency in liquidity—with a change in the arrangement for transferring funds between the bank and the credit card company;
3. Requirement to change the composition of the Board of Directors in the period before the separation—removing directors who belong to the business units at the banks from being members of the Board of Directors at the credit card companies;
4. Leniency in providing lines of credit to credit card companies and lowering the interest rate on this credit—by easing the capital requirements and more;
5. Operating agreements between the bank and the credit card company—among other things, ensuring that customer information shall belong to the credit card company, and through it the company will be able to compete for the bank’s customers, as set out in the law;
6. Close guidance for all those interested in purchasing the companies, with the objective of providing regulatory certainty that is very important to the purchasers;
7. Ownership: Expanding the possibility of purchasing the credit card companies to private equity funds and nonfinancial entities, in order to enable the sale of the companies and the contribution of know-how and experience from abroad through these entities;
8. Publishing an outline of the interchange fee for the coming years, and providing regulatory certainty in this context as well;
9. Expanding the business model: Expressing readiness to allow the credit card companies to operate in a wide variety of financial fields immediately after their separation;
10. The option to turn the credit card company into a bank: The Banking Supervision Department announced that it would be prepared to grant a banking license to a credit card company in a very short time. A new bank will be subject to less regulation, adjusted to risk.
Supervisor of Banks Dr. Hedva Ber said, “The Bank of Israel will continue to guide the separation and to provide regulatory support to the separated credit card companies until they are firmly established as independent and competitive companies, as part of the structure of measures we are taking to advance competition in the fields of banking.”