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This article doesn't tell me what I really want to know, which is why a country with enormous FDI and GDP like Israel has gone almost 5 decades with no new bank

This article doesn't tell me what I really want to know, which is why a country with enormous FDI and GDP like Israel has gone almost 5 decades with no new banks. Is there a regulatory hurdle? Cultural taboos?

hntrader 6y ago
> gone almost 5 decades with no new banks Branchless banking seems like a capability enabled only in the last 15 years by widespread internet adoption among customers as well as a transition to a cashless economy in the last 5 years. Before then I'd imagine the physical startup costs and physical network effects of having hundreds of branches/ATMs, combined with low retail margins would've made it prohibitive for new competition.
PEJOE 6y ago
Corruption and regulatory capture are big ones in Israel. Small population and area also means harder to find a niche
- flyinglizard 6y ago
  I don’t think corruption has anything to do with it (unless you can give any concrete example). Israel didn’t have new banks because the regulator preferred to protect the stability of the existing players, which are heavily regulated themselves. Israel had its share of troubles caused by banks in the 1980s and 1990s, and today banks are kept away from many asset classes and operations to ensure their stability and limit their clout. You could say that the banking regulators gave a limited amount of players a license to print money but they had to play by very particular rules on who owns them, what they do and how their balance sheet looks.
  - PEJOE 6y ago
    > Israel didn’t have new banks because the regulator preferred to protect the stability of the existing players Well said. Whatever the justification, protecting the profits of incumbents at the expense of new entrants is regulatory capture. And to your latter point, here is an example: in the US telecom providers are highly regulated, but they also have largely captured the FCC. Onerous amounts of regulation, contrary to perception, are good for incumbents. It makes launching a new business hard. Fighting through regulatory barriers is one challenge for some European startups trying to achieve scale and displace or match an incumbent. (Very low turnover in top 500 EU companies vs US too 500) Lastly I’d like to note that Israel has some room to improve on the corruption front - they are ranked as having higher perceived corruption than Spain and South Korea, two countries where the rich stay rich, and on par with Botswana. [0] And a bit below the US, where we already struggle with corruption and regulatory capture. [0] https://images.transparencycdn.org/images/CPI2020_Report_EN_0802-WEB-1_2021-02-08-103053.pdf https://images.transparencycdn.org/images/CPI2020_Report_EN_...
    - flyinglizard 6y ago
      The list you cite is “corruption perception”, not corruption per se. other lists such as GCI rank Israel (20th) roughly on par with Japan (18th) [0] The banking regulators in Israel are quite upfront about their objectives of maintaining banking sector stability even at the cost of competition or cost to consumers. They even oversee banking boards. [0] https://risk-indexes.com/global-corruption-index/ https://risk-indexes.com/global-corruption-index/
      - PEJOE 6y ago
        Israel does rank very favorably on this list - I wonder why the perception of corruption, among businesses, is so much higher the measure posited by risk-indexes.com? Perhaps one reason is that the perceived corruption ranking that I shared is just that, while your measure dilutes "Corruption Perception," and "Corruption Experience," to just 42.5% of the measure, filling in the majority of the corruption measure with: - Ratification status of Conventions - Citizen's Voice and Transparency - Government Functioning and Effectiveness - Legal Context - Political Context - White collar Crimes Which to me, in the context of evaluating "Why have there been no new banks in Israel since 1978?" are not as useful as just the combined experiences of companies who are financially exposed to Israeli government decision making. (source: https://risk-indexes.com/wp-content/uploads/2019/10/GCI_TechnicalMethodology_2019-1.pdf https://risk-indexes.com/wp-content/uploads/2019/10/GCI_Tech...) That said, clearly closed room deal-making is not the only challenge to new banks in Israel. It is a small market. China, who does poorly on many measures of corruption, but does have a relatively robust market, has many banks to serve its massive population: https://en.wikipedia.org/wiki/List_of_banks_in_China https://en.wikipedia.org/wiki/List_of_banks_in_China One difference is that corruption in China is often local (federalized corruption?): if you can't get something done in Guangzhou maybe you move it to Changchun and you can. That option doesn't exist in Israel.
        tguvot 6y ago
        >Israel does rank very favorably on this list - I wonder why the perception of corruption, among businesses, is so much higher the measure posited by risk-indexes.com? A few factors: - In Israel corruption is very aggressively prosecuted and will be featured on national news (the only kind of news. no local news there) repeatedly. It creates impression that corruption is everywhere - Orthodox sector due to it's influence gets non-proportional amounts of money from budgets - Everybody afraid to be a freier (https://www.latimes.com/archives/la-xpm-1997-jul-25-mn-16208-story.html https://www.latimes.com/archives/la-xpm-1997-jul-25-mn-16208...), so in case somebody else succeeds, some may assume that it's because of corruption, etc - Having personal relations with somebody or been friend of a friend helps (to speed up a bit small things. no monetary exchange, just a favor) PS. Couldn't find raw data from Israel for index
- marshmallow_12 6y ago
  I am inclined to agree with you. Israel is famous for it's beuracracy. It is enormously damaging to the economy and actively aids monopolies. This extends to individuals too, as any unfortunate soul unlucky enough to get lost in an Israeli government office can attest. This means that banks can act with impunity, especially since to transfer larger sums of money, one needs to do so via the bank by law. I suspect theres a large amount of corruption there. I hope this new bank can help a little.
llimos 6y ago
Banks are so tightly regulated that they all offer pretty much identical options at identical prices. Shopping around, it's virtually impossible to find any differentiator between them. They don't even advertise based on differentiation, it's more things like 'our call center people are more polite than theirs'.
- tpetry 6y ago
  Absolutely the opposite. Fintech and online-only banks have allowed so much new things to differentiate to the old banks. The concept of privacy.com with securing your online credit card purchase, revolut‘s ability to get rid of money exchange fees or just the many app banks.
  - yoavm 6y ago
    I think the parent post was talking about the Israeli market. There is no Privacy.com, Revolut etc in Israel.

hntrader 6y ago

> gone almost 5 decades with no new banks Branchless banking seems like a capability enabled only in the last 15 years by widespread internet adoption among customers as well as a transition to a cashless economy in the last 5 years. Before then I'd imagine the physical startup costs and physical network effects of having hundreds of branches/ATMs, combined with low retail margins would've made it prohibitive for new competition.

PEJOE 6y ago

Corruption and regulatory capture are big ones in Israel. Small population and area also means harder to find a niche

flyinglizard 6y ago
I don’t think corruption has anything to do with it (unless you can give any concrete example). Israel didn’t have new banks because the regulator preferred to protect the stability of the existing players, which are heavily regulated themselves. Israel had its share of troubles caused by banks in the 1980s and 1990s, and today banks are kept away from many asset classes and operations to ensure their stability and limit their clout. You could say that the banking regulators gave a limited amount of players a license to print money but they had to play by very particular rules on who owns them, what they do and how their balance sheet looks.
- PEJOE 6y ago
  > Israel didn’t have new banks because the regulator preferred to protect the stability of the existing players Well said. Whatever the justification, protecting the profits of incumbents at the expense of new entrants is regulatory capture. And to your latter point, here is an example: in the US telecom providers are highly regulated, but they also have largely captured the FCC. Onerous amounts of regulation, contrary to perception, are good for incumbents. It makes launching a new business hard. Fighting through regulatory barriers is one challenge for some European startups trying to achieve scale and displace or match an incumbent. (Very low turnover in top 500 EU companies vs US too 500) Lastly I’d like to note that Israel has some room to improve on the corruption front - they are ranked as having higher perceived corruption than Spain and South Korea, two countries where the rich stay rich, and on par with Botswana. [0] And a bit below the US, where we already struggle with corruption and regulatory capture. [0] https://images.transparencycdn.org/images/CPI2020_Report_EN_0802-WEB-1_2021-02-08-103053.pdf https://images.transparencycdn.org/images/CPI2020_Report_EN_...
  - flyinglizard 6y ago
    The list you cite is “corruption perception”, not corruption per se. other lists such as GCI rank Israel (20th) roughly on par with Japan (18th) [0] The banking regulators in Israel are quite upfront about their objectives of maintaining banking sector stability even at the cost of competition or cost to consumers. They even oversee banking boards. [0] https://risk-indexes.com/global-corruption-index/ https://risk-indexes.com/global-corruption-index/
    - PEJOE 6y ago
      Israel does rank very favorably on this list - I wonder why the perception of corruption, among businesses, is so much higher the measure posited by risk-indexes.com? Perhaps one reason is that the perceived corruption ranking that I shared is just that, while your measure dilutes "Corruption Perception," and "Corruption Experience," to just 42.5% of the measure, filling in the majority of the corruption measure with: - Ratification status of Conventions - Citizen's Voice and Transparency - Government Functioning and Effectiveness - Legal Context - Political Context - White collar Crimes Which to me, in the context of evaluating "Why have there been no new banks in Israel since 1978?" are not as useful as just the combined experiences of companies who are financially exposed to Israeli government decision making. (source: https://risk-indexes.com/wp-content/uploads/2019/10/GCI_TechnicalMethodology_2019-1.pdf https://risk-indexes.com/wp-content/uploads/2019/10/GCI_Tech...) That said, clearly closed room deal-making is not the only challenge to new banks in Israel. It is a small market. China, who does poorly on many measures of corruption, but does have a relatively robust market, has many banks to serve its massive population: https://en.wikipedia.org/wiki/List_of_banks_in_China https://en.wikipedia.org/wiki/List_of_banks_in_China One difference is that corruption in China is often local (federalized corruption?): if you can't get something done in Guangzhou maybe you move it to Changchun and you can. That option doesn't exist in Israel.
      - tguvot 6y ago
        >Israel does rank very favorably on this list - I wonder why the perception of corruption, among businesses, is so much higher the measure posited by risk-indexes.com? A few factors: - In Israel corruption is very aggressively prosecuted and will be featured on national news (the only kind of news. no local news there) repeatedly. It creates impression that corruption is everywhere - Orthodox sector due to it's influence gets non-proportional amounts of money from budgets - Everybody afraid to be a freier (https://www.latimes.com/archives/la-xpm-1997-jul-25-mn-16208-story.html https://www.latimes.com/archives/la-xpm-1997-jul-25-mn-16208...), so in case somebody else succeeds, some may assume that it's because of corruption, etc - Having personal relations with somebody or been friend of a friend helps (to speed up a bit small things. no monetary exchange, just a favor) PS. Couldn't find raw data from Israel for index
marshmallow_12 6y ago
I am inclined to agree with you. Israel is famous for it's beuracracy. It is enormously damaging to the economy and actively aids monopolies. This extends to individuals too, as any unfortunate soul unlucky enough to get lost in an Israeli government office can attest. This means that banks can act with impunity, especially since to transfer larger sums of money, one needs to do so via the bank by law. I suspect theres a large amount of corruption there. I hope this new bank can help a little.

llimos 6y ago

Banks are so tightly regulated that they all offer pretty much identical options at identical prices. Shopping around, it's virtually impossible to find any differentiator between them. They don't even advertise based on differentiation, it's more things like 'our call center people are more polite than theirs'.

tpetry 6y ago
Absolutely the opposite. Fintech and online-only banks have allowed so much new things to differentiate to the old banks. The concept of privacy.com with securing your online credit card purchase, revolut‘s ability to get rid of money exchange fees or just the many app banks.
- yoavm 6y ago
  I think the parent post was talking about the Israeli market. There is no Privacy.com, Revolut etc in Israel.