Israeli minister says banks ‘scandalous’

Israeli Finance Minister Bezalel Smotrich voiced his opposition on Monday to legislation that would require banks to pay interest on checking accounts, despite condemning the “scandalous” conduct of top banks towards their customers. During a session of parliament’s finance committee, Smotrich criticized the banks for reaping substantial profits from a surge in interest rates over the past year. He also expressed disappointment with the country’s banking regulator for not ensuring that these higher rates benefit consumers, not just being funneled towards mortgages and other loans.

However, Smotrich refrained from supporting measures that could discourage banks from lending. He emphasised that the increased interest rates were intended to combat inflation and bolster the nation’s economic strength, not to enrich the banks. Smotrich urged caution against pursuing populist actions that might do more harm than good in the long run. He sought effective tools that would address the needs of the population without fueling inflation.

Last week, parliament member Yinon Azulay proposed a bill requiring banks to pay interest on checking accounts, with the finance minister having the final say on the interest rate. However, the bill’s preliminary reading was postponed after the central bank chief warned that it could undermine the independence of the Bank of Israel. Despite this, Israel’s major banks, including Leumi, Hapoalim, and Mizrahi Tefahot, have already taken steps to offer interest on checking accounts and reduced interest rates on negative balances, prompted by Azulay’s bill.

Smotrich reiterated his plans to tax banks’ excess profits and implement other measures aimed at providing citizens with more disposable income amidst soaring living costs. He acknowledged the need to strike a balance between providing relief to the public and maintaining a stable economic environment. Israel’s banking system remains highly concentrated, controlled by five banking groups, which has drawn criticism from committee members who accused Bank of Israel Governor Amir Yaron of leniency towards the banks’ inflated profits.