Bank of Israel backs interministerial recommendations to ease banking licences for nonbank entrants and boost retail banking competition

Bank of Israel Governor Prof. Amir Yaron used a Ministry of Finance press conference to highlight the interministerial team’s summary report on measures to enhance competition in Israel’s retail banking sector. The framework set out in the report is designed to reduce barriers to new bank entry, including by easing the process for nonbank entities to obtain a banking licence, while maintaining financial stability and the principle that any institution taking deposits and lending from those deposits is a bank and must be regulated as such. Yaron identified two key obstacles to new bank entry: the compliance cost of extensive banking regulation, which can deter smaller players, and the need for sufficient financial backing while a new bank builds a deposit base and market share. The report’s recommendations aim to address these constraints through a tiered, customised approach that gives smaller banks more flexibility in business models and ownership structures, and includes a potential route for a major nonbank credit provider to become a small bank by leveraging an existing customer base, lending experience and equity. He indicated that bringing one or two significant new participants into the banking system would represent a substantial success, and placed the initiative alongside broader competition and market-infrastructure reforms already implemented and under way, including open banking, one-click account mobility, securitisation, development of a repo market, changes to the SHIR interest rate and the introduction of immediate payments.