Bank of Israel questioned by Competition Authority: Are Israel’s banks competitive enough?

Competition Commissioner Michal Cohen met with Governor of the Bank of Israel Professor Amir Yaron on Thursday to discuss the possibility of declaring banks as a “concentration group,” a situation where a small number of companies or organizations dominate a particular sector or industry with little competition between them.

The Competition Authority has found limited competition among banks in managing retail customer accounts, particularly in the area of deposits, and is considering imposing certain instructions on the banks, such as prohibiting tying deposits to other banking services and obliging banks to accept deposits from non-bank payment companies.

They also aim to reduce barriers in transferring deposits separately from other banking services and require banks to provide comparative information to customers.

The Competition Authority's inspections are ongoing, and they are still formulating the instructions while consulting with other regulators, led by the Bank of Israel. Once the decision to announce a concentration group and issue instructions is made, there will be a public hearing.

Banks put small businesses at a disadvantage

The need for such measures was discussed in the Knesset after banks failed to fully increase interest rates on deposits as they did on loans. The competition authority found that households and small businesses were at a disadvantage compared to larger businesses and private banking firms due to lower interest rates. Pressure on the banks has escalated to the Ministerial Committee for Legislative Affairs, with two bills introduced on the matter.

The Bank of Israel expressed surprise at the Competition Authority's notice and clarified that they had not formulated a position on declaring banks as a concentration group.

”At the request of the Competition Authority, a meeting was held this afternoon in the presence of the Governor and the Supervisor of Banks, in which the Competition Authority raised for the first time a number of preliminary and unstructured thoughts on the subject of their desire to declare the banks as a concentration group. Contrary to what was published, the Governor and the supervisor did not formulate any position on the issue,” it said in a statement.

The Bank of Israel is focused on promoting competition among banks regarding interest rate policies and has been advocating against using a uniform regulatory approach. They have also raised concerns with the Prime Minister, resulting in a delay in submitting a bill for approval by the Knesset plenum.