Bank of Israel Governor Prof. Amir Yaron has sent a scathing letter to Prime Minister Benjamin Netanyahu asking him to withdraw a bill approved yesterday by the Ministerial Committee for Legislation that requires banks to pay interest on consumers’ checking accounts. He stressed that the proposed legislation threatens the independence of the Bank of Israel.
According to the bill, Israeli banks would be required to pay minimum interest rates, which would be determined by the Governor of the Bank of Israel, and approved by the Finance Minister. The bill is scheduled to receive a preliminary reading in the full Knesset tomorrow. “I would like to express my strong opposition to the proposal,” Yaron wrote.
He added: “Setting a unified price harms the activity of the market mechanism, makes all players gather around the set price and limits competition and efficiency in every way; it leads to great difficulties in application regarding the method of calculating the price; and it is viewed internationally as a negative move that is not suitable for developed economies.” in developed countries.
“I am concerned that this kind of blatant interference through legislation could affect not only international financial entities considering operating in Israel, but also international business entities in other areas of the economy. The focus of the discussion is on one step in the current field.” Things, certainly when done while interfering with pricing, are not ideal for customers,” Yaron noted.
Yaron also charged that the proposed legislation would harm the independence of the Bank of Israel — an issue that has come up repeatedly in recent months in the wake of attacks by MKs and ministers.
“The proposed legislation in which the Governor of the Bank of Israel sets the minimum interest rate on current accounts is subject to the approval of the Minister of Finance, and constitutes a serious blow to the independence of the Bank of Israel and its ability to conduct monetary policy. It would give the Ministry of Finance the power to actually influence the interest rate in the economy and to blatantly interfere in the conduct of policy Violating the independence of the central bank enshrined in the law is a real red line to be crossed and there is a real concern that it will be seen as such by international authorities and rating firms.”
“In light of the above, I will request your immediate intervention so that this law is immediately removed from the agenda,” the governor wrote. He stressed that there is room to continue to improve competition in the banking sector – particularly in consumer credit used by households and credit to small and medium enterprises. “The best way to improve customer well-being is to continue removing the barriers that prevent competition between existing players and those that prevent new players from entering,” Yaron explained.
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Yaron indicated that he had called last week to convene an urgent meeting of the chief executives of banks, in which he directed them to find solutions to the issue of the interest rate on current accounts as well as to improve the passage of raising interest rates on deposit accounts, especially for households. In addition to finding solutions that would mitigate consumers’ overdraft situation.
Published by Globes, Israel business news – en.globes.co.il – on June 27, 2023.
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