Banking & Finance Israel banks to compete for default savings rate By Reuters July 7, 2023 Reuters/Gil Cohen-Magen The ministry, lawmakers, the central bank and regulators have sharply criticised banks for being quick to act to raise interest rates on mortgages and other loans while being slow in passing on the steep rise in rates to consumer bank accounts Israel’s finance ministry on Thursday proposed a plan that for its five largest banks to compete against each other to offer the highest interest rates on savings accounts. The ministry, lawmakers, the central bank and regulators have sharply criticised banks for being quick to act to raise interest rates on mortgages and other loans while being slow in passing on the steep rise in rates to consumer bank accounts. It noted that as the Bank of Israel raised its key rate to fight inflation, the banks raked in profits of 24 billion shekels ($6.5 billion) last year, a 30 percent gain over 2021. Under the “default deposit” plan, banks periodically would compete to offer the highest interest rate in daily, monthly, three-month and six-month deposit accounts. The winning rate would be required to be offered to everyone through a link on all other competing banks. Earlier this week, finance minister Bezalel Smotrich called the banks “scandalous” in their treatment of customers. He said the central bank was slow in ensuring higher rates are passed through to consumers and not just to mortgages and other loans. But he stopped short of endorsing proposed legislation that would require banks to pay interest on checking accounts, saying he did not want to enact populist measures. Still, Smotrich had said he would seek other steps that also includes possible taxation of banks’ excess profits. Bank of Israel governor Amir Yaron had said the proposed banking bill would harm the central bank’s independence since the final say on interest rates would be with the finance minister. The bill has so far been postponed. In the meantime, banks have unveiled a series of measures that pay interest on checking accounts and charge lower interest on below-zero balances. Also last week, Israel’s competition watchdog said it would start talks with the central bank over the possibility of declaring the country’s five largest banks an oligopoly and making them subject to directives in consumer checking and savings accounts. Since April 2022, the Bank of Israel has raised its benchmark interest rate to 4.75 percent from 0.1 percent, while inflation has stayed around five percent.