For the protection of depositors, the Bank of Israel is closely monitoring its banking system

The Bank of Israel has requested that banks present a plan to redirect deposits from current accounts to term deposits, after banks stopped paying interest on these accounts, according to the Israeli press. The letter sent by the Bank of Israel includes, according to sources, requirements for active measures, such as proactive phone calls to clients, and explains the need to reduce interest rate discrepancies between different categories of clients.

Each bank must prepare a detailed plan, including quantitative targets, deadlines, and responsible individuals for implementation. The Bank of Israel emphasizes that these measures are necessary due to the high profits of banks, largely obtained from large funds in non-interest-bearing current accounts and from low-interest rates on deposits.

According to the Bank of Israel's data, in April 2024, there were 386 billion NIS (New Israeli Shekel, the Israeli currency) - equivalent to about 100 billion euros - in the public's current accounts, money for which banks do not pay interest but can deposit with the Bank of Israel to earn interest. The letter suggests that banks should improve interest rates for households and reduce disparities between the interest rates offered to different clients.

These requirements also respond to the Competition Authority's intention to declare that banks have created a cartel, acting concertedly to control market conditions, such as interest rates. This allows the central bank to impose strict guidelines.

Additionally, banks are expected to publish reports for the second quarter, which are estimated to show high profitability, despite initial expectations of a decline in profitability due to the interest rate reduction plan, postponed until next year. The Bank of Israel aims to apply pressure on banks to respond to future legislative initiatives regulating interest rates.

The Bank of Israel communicated: "Bank supervision works regularly and directly with the banking system to maintain public confidence in the system and promote fairness to its clients." The Bank of Israel's statement informed that it will continue to monitor the implementation of measures and their impact on the clients of the banking system.

Some analysts see this as a possibility for the Bank of Israel to pursue greater predictability and financial stability, helping to limit impulsive or panic reactions among depositors, especially in the context of possible financial turbulence and regional conflicts. By promoting deposits, the central bank aims to ensure more stable and predictable behavior of bank clients, thus reducing risks to the financial system as a whole. This is the latest measure adopted by the Bank of Israel, in a series that began last year, aiming to strengthen Israel's financial stability.