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18.04.2012
 
Document of Principles for the Dispersion of Controlling Shares
 
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  The Supervisor of Banks has issued a draft document of principles regarding the sale of a bank’s controlling core in order to disperse control, such that after the sale the bank will not have a controlling core.
  The public is invited to submit comments on the draft document of principles through May 20, 2012.
The Banking (Licensing) Law, 5731-1981, and the Banking Ordinances were amended in September 2004, thus allowing a bank in Israel to operate not only as a bank with a controlling core which received a control permit granted by the Governor of the Bank of Israel, but also as a bank with dispersed control and without controlling shareholders. As a result, the controlling shareholders of a bank who received a control permit from the Governor could sell their controlling shares in one of two ways:
a. the sale of the controlling shares to another group that had previously received a control permit from the Governor;
b. the sale of the controlling shares in a dispersed manner, such that none of the buyers would hold more than 5 percent of the means of control in the bank.
Each of these holding structures has both advantages and disadvantages from the point of view of the Banking Supervision Department's ability to supervise the banks and ensure their appropriate management and financial stability in the long run. Therefore, the Banking Supervision Department takes steps from time to time to reduce the risks deriving from the disadvantages of each of the holding structures, whether through legislation it initiates, such as the Banking Law (amendments), 5772-2012 which was recently completed, or through regulatory directives.
The Bank of Israel has today published a draft document of principles for the dispersion of controlling shares, which will apply to controlling shareholders that have decided to sell their shares using the dispersion method. The goal of these principles is to ensure that the former controlling shareholders do not continue to actually control the bank, despite the cancellation of their control permit, in view of the fact that during the transition period they are able to continue holding a significant proportion of the means of control in the bank. The principles set out the limits of cooperation among the former controlling shareholders during the transaction period in which control is dispersed, the relationship been the controlling shareholders and the Board of Directors, the limits on dividend distributions during the transition period, etc.
Attached please find the draft document of principles.
The public is invited to submit comments on the draft until not later than May 20, 2012.