Financing Small and Medium-Sized Enterprises (SMEs) and Banking Competition
This report addresses three specific issues:
(1) What is the justification for reforming current banking regulations?
(2) What are the regulatory impediments to competitive credit allocation in Israel?
(3) What measures could be adopted to ensure a more competitive credit market?
The analytical approach of this paper is based on two fundamental propositions. First, competitive banking promotes credit allocation more effectively than centralized government initiatives. Second, for Israel to become a successful financial center, adequate financial opportunities must be provided to all market participants, regardless of their income level or demographics. For this reason, we conclude that any comprehensive attempt to reform financial markets in Israel must address the human and economic potential of all its participants. Similarly, any such attempts must also address prevailing barriers to competition in Israel’s commercial banking sector.