Bank of Israel Governor Prof. Amir Yaron has sent Prime Minister Benjamin Netanyahu a harsh letter asking him to withdraw the bill approved yesterday by ministerial committee on legislation to require banks to pay interest on consumer current accounts. He stressed that the proposed legislation threatens the Bank of Israel’s independence.
According to the bill, Israeli banks would be required to pay minimal interest rates, set by the Bank of Israel Governor, and approved by the Minister of Finance. The bill is due to receive a preliminary reading in the Knesset plenum tomorrow. “I wish to express my resolute opposition to the proposal,” Yaron wrote.
He added, “Setting a uniform price harms the activity of the market mechanism, causes all the players to gather around the set price and in every way suppresses competition and efficiency; gives rise to significant application difficulties with regard to the method of calculating the price; and is seen internationally as a negative move that does not suit advanced economies in developed countries.
“I am concerned that this kind of blatant interference through legislation could affect not only international financial entities that are considering operating in Israel, but also international business entities in other areas of the economy. Focusing the discussion on a single step in the field of current affairs, certainly when it is carried out while intervening in pricing, is not optimal for customers,” Yaron further noted.
Yaron also charges that the proposed legislation would harm the independence of the Bank of Israel – an issue that has surfaced repeatedly in recent months following attacks by MKs and ministers.
“The proposed legislation in which the minimum interest rate on current accounts would be set by the Governor of the Bank of Israel is subject to the approval of the Minister of Finance, and constitutes a very serious blow to the independence of the Bank of Israel and its ability to manage monetary policy. The Minister of Finance would be given the authority to actually influence the interest rate in the economy and to blatantly interfere in the management of monetary policy and its effectiveness. The violation of the central bank’s independence embodied in the bill is a real red line being crossed and there is a real concern that it would be perceived as such by the international authorities and the rating companies,” the Governor warned.
“In light of the above, I will ask for your immediate intervention so that this bill is immediately removed from the agenda,” the Governor wrote. He stressed there is room to continue improving competition in the banking sector – especially in the consumer credit segment used by households and credit for small and medium businesses. “The best way to improve customer welfare is to continue removing barriers that prevent competition between the existing players and those that prevent the entry of new players,” explained Yaron.
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BoI governor tells banks to pay current account interest
Yaron recalled that last week he convened an urgent meeting of the banks’ CEOs in which he instructed them to find solutions on the issue of interest rate on current accounts as well as to improve passing on interest rate hikes to deposit accounts, especially for households as well as to find solutions that would ease the situation for consumers in overdraft.
Published by Globes, Israel business news – en.globes.co.il – on June 27, 2023.
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