ISRAEL IS KNOWN FOR tech innovation, but its banks have a lot of
catching up to do. So Hedva Ber, the supervisor of banks within
Israel’s central bank, is cutting red tape and spurring competition.
That includes awarding the first new bank license since the 1970s,
to a digital bank led by two tech entrepreneurs—Marius Nacht of
cybersecurity company Check Point Software Technologies Ltd.
and Amnon Shashua of Mobileye NV, which develops autonomous
driving software. Ber said the new branchless bank, which will offer
credit and brokerage services, will “lead a change in the market.”
With a Ph.D. in economics from Hebrew University, she has spent
more than two decades learning about the financial sector from
positions within the Bank of Israel and Bank Leumi, the country’s
biggest lender by assets. In an interview in Tel Aviv, Ber, 51, described
the challenges of moving the industry away from its socialist roots
while keeping risks under control.
IVAN LEVINGSTON: How did you get into bank regulation?
HEDVA BER: I started to work in the Bank of Israel at age 25. I fell in
love with banking and bank regulation. And in the process of my
career, all the different choices I made, I had in the back of my
mind that I’d want to one day be the supervisor of banks, and
23 years later I received the position. Today I’ve been doing it for
more than four years, and I can say it was the right dream. It’s a
significant job—exciting, challenging, and I enjoy it.
IL: What specifically made it your dream job?
HB: The regulator has a very elevated influence on the banking
system and via the banking system on the entire economy, on
households, on who takes mortgages and who can’t get one and
buy an apartment, on small businesses and big businesses, on
economic growth, on financial stability. What’s exciting at the end
is the people, that the regulation influences them.
IL: Why move between the private and the public sector?
HB: It gave me a lot of perspective, to see things from the side
of Bank of Israel, the regulator, and also from the side of a bank.
This gives me tools to do this job in a balanced way, with an under-
standing of which risks are big and mustn’t be implemented, and
which risks are possible to handle.
IL: Israel’s known as “startup nation.” How do banks compare?
HB: The banking system in Israel is innovative. Startup nation is
also fintech nation, and there were big and innovative changes in
recent years—in the banking system, technology, and also in man-
aging risk. The cybersecurity of the banking system is a leader in
the world. We, the bank supervisor, actually have set as our central
goal for the past few years to make the banking system more
innovative and technologically advanced. We removed all restric-
tions on digital banking. We required that on every bank’s board
of directors at least one director should have knowledge and expe-
rience in technology and innovation. The board should advise and
push the bank to fit its business model to the changing world. We
made it possible for the banking system to move to cloud tech-
nology, making it possible for more collaboration with fintechs.
And we put out just recently, just about a month ago, a letter to
the banking system that said we encourage them in implementing
innovation and as regulators we are ready for risks to be realized.
So again we essentially give them comfort to advance with inno-
vation that has risks. But we make demands for how to manage
the risks.
We recently permitted banks to open client accounts from
afar with face recognition, without a banker on the other side. Just
technology. Now more and more accounts are opened this way.
IL: Can the financial sector learn from the tech world?
HB: Banks fundamentally are more conservative, and it’s harder
for them to change compared to startups. The win-win is when
there’s cooperation between a bank with a culture of risk man-
agement, good processes, and understanding of risks and fintech
companies that are faster, more flexible, and innovative. This coop-
eration allows each to benefit from the other’s world: Fintechs to
test their products on the bank’s data and clients, to learn from
the bank’s experience, and the bank can bring in the innovation
and implement it. This speeds things up and provides the public
with much more accessible, customized services and enables
more competition. The technology lowers barriers for entry. That’s
also a target that we gave ourselves, to raise the competition in
the financial system in general and banks specifically.
IL: How do you modernize an industry with socialist roots?
HB: You have to think outside of the box. In Israel it’s known there
are banks with labor unions, and the workers have tenure, and this
framework is often inflexible and makes it difficult to become
more efficient quickly. So about four years ago we told the banks
that they need to become more efficient. But we said that we will
permit the big expense of offering workers good voluntary retire-
ment packages to be spread over a few years so that it doesn’t
affect profits. And we gave them relief on capital requirements.
So this triggered them to reduce manpower, rein in the labor unions,
and to do this in a way that respects the workers. Thousands of
workers chose to retire voluntarily with a good financial package.
The banks reduced a non-negligible percentage of their workforce,
about 12% of the bank system. The banks were able to adjust<GO> INSIDE THE TERMINAL 21