Bank of Israel calls for supervision of bank fees

The Bank of Israel today published its proposals for the supervision of bank fees. The bank sent its draft bill to the Ministry of Finance, which will submit it as a government bill.

The Bank of Israel says, “The main point of the proposal is to grant constitutional authority to the Supervisor of Banks at the Bank of Israel to supervise prices of banking services, in order to promote competition and reduce market failures, particularly in areas where competition is weak, as well as to ensure that basic services remain affordable, thereby maximizing access to bank accounts. According to the proposal, the Supervisor of Banks will be authorized to supervise prices of those banking services that fall under one of the following:

• A service for which charges could reduce competition;
• A service that a customer must receive from a particular banking corporation;
• An essential service connected to a checking account;
• A service for which charging a fee is insufficiently justified.

The bank also proposes, “The Supervisor of Banks will be authorized to set the complete tariff structure of banks, the banking services included on the list, the names of the fees, their types and method of calculation. The intention is to simplify the tariff structure as much as possible.”

At a meeting of the Association of Bank in Israel, Governor of the Bank of Israel Prof. Stanley Fischer said that even he could not understand the printout of transactions at his bank account.

As a result, the Bank of Israel said that its proposal “contains steps to improve the public's familiarity with the banking services offered as well as the ability to compare banks. In this, the Bank recognizes the importance of transparency, particularly so in the concentrated banking industry in Israel, irrespective of the level of prices prevalent in Israel compared to banking systems elsewhere.”

The Bank of Israel proposes the following measures:

• A considerable cut in the number of tariffs;
• Creating uniformity in the tariff structure and in the names of banking services for which fees are charged;
• The creation of a single service, that of managing a checking account. In other words, to define all the day-to-day services associated with managing a checking account - for example deposits into and withdrawals from the account, standing orders, direct debits - as one single service;
• The creation of separate shorter tariff structures for specific clients or groups of particular services, which will be derived from the bank's full tariff structure. These smaller tariff lists will serve, in specific cases, private customers, which use more consumer-driven services than banking services. For example, mortgage holders, debit card holders, private customers with checking accounts;
• The creation of a standard for reporting regularly to the Supervisor of Banks on fees, which will serve as a regular publication for comparative purposes;
• The reduction of costs and easing the transfer of an account from one bank to another.
  The Bank of Israel added, “In international comparisons, in Western countries which apparently enjoy higher levels of competition in banking, a simple fee system is the norm, which is not inundated with a multiple of charges, and which often allows a checking account customer, in certain circumstances, to avoid all charges on the account. It is also acceptable in many Western countries to intervene in the prices of day-to-day banking services on checking accounts and on funds, up to a limited extent.

  Association of Banks executive director Moshe Perl said in response, “Without going into the details of the proposal, which we have not yet seen, I can tell you that I am pleased that the Bank of Israel has chosen to focus on fees charged for households, but I am disappointed that it recommends a drastic remedy in the form of sweeping supervision of prices. The facts show that the situation of households as far as fees are concerned is not as severe as commonly thought, and certainly does not justify legislative intervention.”

  Published by Globes [online], Israel business news - www.globes.co.il - on January 30, 2007

  © Copyright of Globes Publisher Itonut (1983) Ltd. 2007