Bank of Israel Governor Prof. Amir Yaron today (Tuesday) appealed to Prime Minister Benjamin Netanyahu with an urgent and unusual request to immediately remove from the agenda the bill that would require banks to pay interest on current account balances. The proposal was approved by the Ministerial Committee on Legislation last Sunday and is scheduled to be voted on in a preliminary reading tomorrow.
"I strongly oppose intervention in the pricing of banking products and the setting of a uniform price," the Governor wrote. "Setting such a price harms the activity of market mechanisms; causes all players to converge around the set price, thereby suppressing competition and efficiency; It raises significant practical difficulties with regard to how the price is calculated, and is perceived worldwide as a negative move that is inappropriate for advanced economies in developed countries."
Bank of Israel Governor Prof. Amir Yaron, Photo: Oren Ben Hakon
It added: "I am concerned that such blatant interference in the legislation may affect not only international financial institutions considering operating in Israel, but also international business entities in other areas of the economy. Focusing the discussion on a single step in the current account field, certainly when it is carried out with pricing intervention, is not optimal for customers."
"Crossing a real red line"
According to the Governor, "The proposal that the Bank of Israel's setting of the minimum interest rate on current accounts is subject to the approval of the Minister of Finance constitutes a very serious blow to the Bank of Israel's independence and its ability to conduct monetary policy. Thus, the Minister of Finance is given the authority to effectively influence the interest rate in the economy and to blatantly intervene in the management and effectiveness of monetary policy. The harm to the independence of the central bank embodied in the bill is crossing a real red line, and there is a real concern that it will also be perceived by international entities and rating companies."
Bank of Israel Governor Prof. Amir Yaron at the Finance Committee | Knesset Channel
A week ago, the Governor summoned bank managements to a meeting in his office in Tel Aviv, following the Governor's dissatisfaction with the banks' failure to sufficiently "roll over" the high interest rate in the economy to customers' deposits and checking accounts, while charging high interest rates on loans and deviations from the framework. In the background, there is strong public criticism of the huge profits recorded by the banks in the past year since the beginning of the interest rate increases, and bills by various Knesset members regarding the Bank of Israel interest rate.
At the meeting, the Governor presented to the banks his expectation of paying interest on current account balances and improving interest rates on deposits, and asked the banks to present concrete proposals to the Banking Supervision Department on this issue, including the interest rate for various types of customers.
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