Bank Fee Reform Barely Transforms

The government’s long-awaited bank reform has resulted in an average monthly savings of half a shekel (about 15 cents) for Israelis, while many individual fees actually went up.

Nearly two years after Bank of Israel Governor Stanley Fischer called the list of Israel’s bank charges “ridiculous,” reforms finally went into effect to standardize fees in the banking industry. The monstrous number of fees that banks were charging was reduced from 198 to 72. But otherwise, the proposals were broadly disappointing.

“They looked for what would hurt the public and that’s where they struck,” said parliamentarian Moshe Kahlon. “A crisis of confidence has been created between the public and the banks, which will be hard to overcome in the coming years.”

Fischer says some movement is better than nothing in Israel’s largely uncompetitive banking industry, which functions as an oligopoly. He urged Israelis to take advantage of the changes by doing what they do best—bargain. He encouraged comparative shopping and haggling with banks over their fees in order to force competition, the lack of which is considered the biggest stumbling block to reform.

“Competition is important for bank customers because it creates more varied services. This is the greatest and only power that will lead to streamlining,” Fischer said. “It is necessary to give the reforms…time to work.”

The Bank of Israel is urging consumers to compare the cost of maintaining a checking account, credit cards, and other services at various banks. Its website will feature calculators for users to estimate fees and to find the bank that offers the lowest rates for their personal banking needs.

Consumer organizations were upset that the Bank of Israel didn’t limit the number of bank fees, but the American-born and educated Fischer prefers a hands-off policy.

“Sweeping supervision is undesirable and unacceptable in the world,” Fischer said. “It will bring us to a place where we don’t want to go and would actually hurt the competition that we all want so much, and ultimately hurt consumers.”

Some consumers already insist that the reforms have backfired.

“It used to cost me $1.50 per check to deposit checks from abroad,” a Jerusalem businessman said. “Now they’re taking $6 per check and adding commission too. A transaction that used to cost $9 now costs $70. It’s legal theft.”

Last year, a parliamentary committee reported that Israeli banking fees are 70 percent higher than those in the developed world while Israeli salaries are on average 30 percent lower. No surprise, but the banks are reporting record profits.