The Bank of Israel’s response in the discussion in the Committee for Public Initiatives that dealt with “The Bank of Israel’s conduct harming financial entities’ competition with the banks”

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In a discussion held today in the Committee for Public Initiatives, which dealt with the Bank of Israel’s conduct in relation to competition in the banking and financial market, Bank of Israel representatives appeared in order to present the Bank’s position on the matter.  The following are the main points of the Bank of Israel’s response:

• “First, we emphasize that in contrast with the headline of the discussion, the Bank of Israel and its employees work tirelessly to advance competition in the financial system. Over the past years, the Bank of Israel has been working even harder to advance competition in the financial system.  As part of this, two new banks have been added to the system, and their establishment has been guided and encouraged by the Bank of Israel.  In addition, very significant reforms have been advanced, including the simplification of moving between banks; the transparency reform with regard to interest on credit and deposits; the mortgage reform; the establishment of a retail credit database and the advancement of a business credit database; enabling fintech firms to directly connect with the Bank of Israel’s systems and improving their ability to compete with the banks; and a great many other measures.”
• “A few days ago, a public call was issued stating that the Bank of Israel intends to lay out a lenient policy for granting licenses to banking corporations, as part of which the license and banking supervision will be adjusted to the desired activity and to the risk level in the activity of the entity requesting the license, in a way that takes stability requirements into account. These entities will be allowed to have access to monetary deposits and loans at the Bank of Israel under accepted conditions.”
• “Alongside the importance of increased competition, we must constantly remember that the stability of the Israeli financial system is a critical economic component of the country’s national strength. Proposals that were raised in the Committee’s previous discussions contain a real risk, and may snowball with destructive consequences for the stability of the financial system.  For instance, the proposal to allow financial entities to obtain deposits from the public and to use them to provide credit without a banking corporation license and without the appropriate banking supervision and regulation constitutes a real risk to everyone involved, and is contrary to all international standards.”
• “In view of the Swords of Iron war, the Bank of Israel conducted an analysis, which identified a decline in the balance of credit to the small and micro business segment. As a result, the Monetary Committee decided to adopt a measure focused on providing low-cost monetary loans.  The measure was intended to help businesses succeed and survive even when the war ends.  The program achieved its objective, as loans were provided to thousands of small and micro businesses, totaling about NIS 5.5 billion.  More than half of those businesses suffered a decline in revenue of more than 50 percent relative to the same period in the previous year.  The measure taken by the Bank of Israel was limited in time—it was set for just three months.  Therefore, this measure does not, and did not, have any impact on competition in the financial system.  Connecting a temporary measure taken during wartime and the structural issue of competition in the financial system lacks any economic logic.”
• “The proposal that when conducting monetary policy it would be obligatory to consider competition is very problematic to say the least. To the best of our knowledge, such a requirement does not exist in other advanced economies, and it harms the independence of the Monetary Committee.  It is worth mentioning that increased competition in the financial system does not in any way justify harming the independence of the Bank of Israel.  That independence is a fundamental component of the activity of advanced economies around the world, and harming it may have negative implications for the country’s economic strength.  This is even more true at the current time, in which the Israeli economy is the subject of close examination on the part of international institutions, some of which have already emphasized the importance of maintaining the strength and independence of the state’s institutions.”
• “Beyond all that has been said, the determination included in the headline of the discussion, that the Bank of Israel is harming competition in the financial system, is a serious charge that lacks any basis, and the Bank of Israel protests against it in the strongest terms. Moreover, the headline of the discussion reflects its conclusion with regard to “the Bank of Israel’s behavior” even before that discussion had begun.”