The Knesset's next battle with the banks
The Bank of Israel will consider requiring banks to notify their customers of positive checking account balances, and offer them interest-accruing deposits.
The Bank of Israel will consider requiring banks to notify their customers of positive checking account balances, and offer them interest-accruing deposits. However, the government and the Bank of Israel object to a bill proposed by MKs Orit Noked (Labor) and Amnon Cohen (Shas) which will require banks to pay interest on checking account balances directly.
After having passed a law to regulate bank fees, the Knesset is now taking up the issue of interest. However, similar bills failed to pass in the past two Knessets due to opposition from the cabinet, the Bank of Israel and the commercial banks.
MK Noked noted that although banks charge customers who are overdrawn, they pay nothing on positive balances. "This is a distortion that should be corrected," she said. "Only Israeli banks, for some reason, are unable to deal with payment of daily interest on checking account balances, and complain about competitiveness. No one complains that there is no competition between banks in American, where all banks offer interest accruing plans. In light of the lack of competitiveness in the Israeli banking market, I believe the regulator should intervene." MK Cohen added that "the intention of the Bachar reform was to encourage competition. This bill is meant to do just that. Banks in the U.S. and the U.K. offer annual interest on positive balances."
Attorney Amir Bachar of the central bank said that the proposed bill is inappropriate, and the government would not support it. Checking account balances, he said, are treated as cash, and customers demand full liquidity of these balances, as opposed to short-term deposits, which are not fully liquid. Bachar also noted that bank fees could be expected to increase if banks are required to pay interest on checking account balances. Banks are required to transfer about 6 percent of all balances deposited, on which they earn no interest.
Moshe Perl, CEO of the Association of Banks in Israel, said that there is no reason to maintain symmetry between overdraft and deposit interest rates, and any customer with a positive checking account balance can place money in short-term deposits.