On August 6, 2025, the interministerial team to increase competition in the retail banking sector (established by Israel’s Minister of Finance in collaboration with the Governor of the Bank of Israel) published its recommendations on the measures needed to increase competition in banking services. Unlike previous disagreements between the Bank of Israel, the Finance Ministry, and the various financial regulatory authorities, members of this interministerial team unanimously adopted the latest recommendations.
Although it will take quite some time to enact the legislative and regulatory amendments needed to implement the recommendations, and even though the final version of the new arrangements might differ from the team’s recommendations in particular contexts, the future outline of the Israeli banking market is clear and agreed upon by all parties involved. This outline reflects a new approach similar to measures taken in other countries in recent years: increasing the number of players providing full or modular banking services to the general public or to particular segments while striking a balance between maintaining the stability of the financial system and preventing conflicts of interest and the need to increase competition in the banking system by maximizing the potential for entry by new banks.
From the Strum Committee to a New, Flexible Banking Model
Previous committees tasked with increasing competition in the Israeli banking market, primarily the Strum Committee, which recommended severing credit card companies from banks, were unsuccessful in creating a fundamental change in competition in the market. This latest interministerial team is demonstrating more flexibility in requirements and degrees of supervision in order to enable new players, which were previously prevented from entering the banking services sector, to obtain a “lean” banking license.
According to the team’s position, existing nonbank entities with previous experience in underwriting and providing credit, such as credit card companies, have significant competitive potential. These entities have existing customer bases, good reputations in the market, and sufficient equity for the purposes of providing credit. The team found that a significant number of nonbank entities are highly qualified to apply for a banking license. The team also found that brand new entities also have the potential to contribute to competition in the existing banking system and to expand the supply of credit, especially in the retail sector.
Key Regulatory Recommendations for Market Entry and Ownership
Below is a brief review of the key recommendations:
- Create a gradual bank licensing framework to enable new players to enter the banking system – The Banking Supervision Department will revise its directives to enable proportionality and gradual implementation of its provisions for new and existing banks (including in terms of capital adequacy and leverage, liquidity, corporate governance, and reporting requirements) according to three levels of supervision and regulation depending upon the size of the bank: (1) up to ILS 15 billion in assets, (2) more than ILS 15 billion and up to ILS 50 billion in assets, and (3) more than ILS 50 billion in assets. The Banking Supervision Department will define lenient regulatory requirements for the first two levels according to the volume and types of activity. The Proper Conduct of Banking Business Directives will apply in full to the third level (currently the five largest banks).
- Allow cross-ownership – A holding company controlling an institutional entity will also be able to control a bank whose assets do not exceed 2.5% of the banking system’s assets, with the possibility of raising the threshold to up to 5% with the approval of the Minister of Finance and the Governor of the Bank of Israel, after consulting with a monitoring team to be formed for this purpose. A bank controlled by a holding company that also controls an institutional entity will be restricted from engaging in investment advice, brokerage, or the marketing of investment, insurance, and savings instruments. Notwithstanding the competitive concerns that could arise as a result of simultaneous control over an institutional entity and a small bank according to the proposed outline, the team believes simultaneous control can be allowed subject to the asset limitations and the prohibition of engaging in investment advice, marketing, or portfolio management. Considering the position of the Competition Authority’s Director General, the team emphasizes in its recommendations that each application for approval of a merger or for a license or control permit will be examined on its own merits.
- Allow combined real holdings and financial holdings – Similar to the current statutory and regulatory situation and limitations, real corporations will be able to control a bank.
- Allow small banks to operate flexible business models – Banks whose volume of assets does not exceed 5% of the banking system’s total assets may operate innovative and lean business models enabling modular financial services, including models focusing solely on deposit and credit activities.
- Expand small banks’ permitted occupations – Unlike the current situation, whereby legislation restricts banks’ permitted occupations, the team is proposing to authorize the Supervisor of Banks to revise and expand the list of occupations permitted for small banks in order to enable nonbank entities that obtain a banking license to continue engaging in the activities in which they are already engaging even after receiving a bank license.
- Permit engagement in elementary insurance – Smaller banks may engage in general insurance brokerage (subject to the restrictions to apply to small banks held by a financial holding company that also holds an institutional entity).
- Delay the application of the law limiting senior executives’ salaries – The law limiting remuneration payable to financial corporations’ executives will not apply to small banks for 10 years after receipt of a banking license.
- Exempt small banks from various obligations applying to banks – The team recommends: (1) granting new small banks an automatic exemption from the open banking obligations and from the obligation to enable customers to switch from one bank to another at no cost for the first three years of the bank’s operations; (2) enabling small banks to rely on third parties to fulfill their customer identification and authentication obligations under anti-money laundering laws; (3) not obligating small banks to comply with the price list prescribed in the Banking Rules (Service to Customers – Fees), 2008, subject to the presentation of the information in some other acceptable manner.
- Extend the provisional period – New entities that receive a banking license will be granted a provisional period of up to three years to fully comply with the regulatory requirements. In addition, the Supervisor of Banks may extend the period for up to two additional years (up to five years since the start of the provisional period).
Coordination Between Financial Regulators and Payment Innovation
Concurrently, considering the decentralized financial regulatory structure in Israel, and the realization that duplicate supervisory and control mechanisms might be created, the team is recommending that the financial regulatory authorities (the Bank of Israel, the Israel Securities Authority, and the Capital Market, Insurance and Savings Authority) formulate a solution for regulating the horizontal supervision of financial holding companies in the economy, including through legislation.
The team also addresses, albeit marginally, complementary measures to encourage activities by payment and information service companies, including promoting the use of instant transfers through the immediate payment service operated by the Masav bank clearing center, enhancing supervision and control over information sources in relation to information sharing, enacting uniform anti-money laundering regulations for the entire financial sector, and promoting legislation to also enable payments of national insurance benefits through payment accounts managed by payment companies.
Outlook: Greater Competition and New Opportunities in Banking
To summarize, to the extent the interministerial team’s recommendations are fully or partially adopted in legislation and regulations of the Banking Supervision Department, Israel will finally see a material improvement in the banking sector. Namely, for the first time, new players will be able to provide banking services under more lenient supervisory arrangements.
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