The Bank of Israel’s Banking Supervision Department has published for public comment a draft Proper Conduct of Banking Business Directive, “Supervisory Framework for Small and New Banks”, which would tailor regulatory and supervisory requirements to a bank’s size, complexity and systemic importance. The framework introduces supervisory tiers and a preparatory phase for newly licensed banks to allow gradual implementation of requirements, while aligning with the Basel Committee on Banking Supervision’s proportionality approach. The draft sets three supervisory tiers based on total assets, with Tier 1 up to NIS 15 billion, Tier 2 above NIS 15 billion and below NIS 50 billion, and Tier 3 above NIS 50 billion. When crossing the Tier 1 and Tier 2 thresholds, the Supervisor of Banks may consider granting a transition period of up to two years to move to the next tier. For newly licensed banks, the proposal includes preparatory stages of up to three years, extendable by up to two years in certain cases, with activity limits including for Tier 1 a deposits cap of NIS 2 billion, and an extension conditional on deposits not exceeding NIS 5 billion. The adjustments contemplated across reviewed banking directives include relief and proportional calibration in capital and leverage, liquidity and its calculation, concentration limits, board size and composition, organisational flexibility including consolidation and outsourcing of functions, risk management tools, and flexibility for small and digital-bank business models. If finalised, the directive would replace Proper Conduct of Banking Business Directive No. 480 and broaden the earlier adjustments to cover both new and existing banks. The draft follows the August 2025 recommendations of an interministerial team on retail banking competition and is positioned alongside legislative initiatives being advanced with the Ministry of Finance to further reduce entry barriers, including through graduated licensing.
Bank of Israel 2026-02-08
Bank of Israel launches consultation on tiered supervisory framework easing requirements for small and new banks
The Bank of Israel’s Banking Supervision Department has released a draft directive for public comment, proposing a supervisory framework for small and new banks aligned with the Basel Committee on Banking Supervision’s proportionality approach. The framework introduces supervisory tiers based on asset size, preparatory phases for new banks, and adjustments to banking directives, aiming to tailor regulatory requirements to a bank’s size, complexity, and systemic importance.