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Supervisor of Banks Daniel Hahiashvili spoke at the annual Banking Supervision Department conference on "Banking of Tomorrow”, which was held today. In his remarks, he mapped out the changes Israel’s banking system is undergoing, using two main vectors: the exogenous vector, which includes customer needs, the competitive environment, technological developments, and regulatory requirements; and the endogenous vector, which includes banking products and services, service channels, and business models. The following are selected quotes from his speech:
"In the coming year, the Banking Supervision Department will publish regulations to align Israel's capital requirements with global standards. As part of this, capital requirements will be structured from capital buffers, allowing the Banking Supervision Department greater flexibility to adjust capital requirements to different scenarios and provide greater transparency to the banking system and the public. For now, the Banking Supervision Department will continue making sure that the capital held by the banks reflects the risk environment, including geopolitical risks."
"The banking system needs to prepare for a payments market that may include central bank digital currencies and stablecoins. Among other things, and as is happening globally, the banking system should explore and develop the ability to tokenize deposits. The Banking Supervision Department has established a dedicated team working with representatives of the banking system in this area."
"Banking customers are demanding greater fairness from banks. This demand translates into extensive public discourse on the subject and also into customer actions, thanks in part to the tools we have provided them and advanced technology. We are seeing a significant shift of customer funds to money market funds, customers opening securities accounts with entities outside the banking system, and more. Therefore, fairness is not just an important value in dealing with customers; it is a basic business necessity for the banking system, and this should be internalized quickly."
"Customer financial information is the foundation for building value propositions by financial entities. Open banking is a central platform for building this information, and in the coming years, the Banking Supervision Department will work to continue strengthening it, particularly regarding the system’s reliability and encouraging its usability."
"Artificial intelligence is changing, and is expected to continue change, banking operations significantly. Banks will be able to provide tailored services to each customer and improve operational, business, and risk management processes. For this to happen, banks need to be equipped with appropriate computer systems to implement AI tools, have trained staff, and the ability to manage the risks arising from the use of AI."
"The advancement of technology increases cyber risks. We are seeing an increase in the number of cyberattacks, the sophistication of these attacks, the use of external suppliers to carry out attacks, and even the use of artificial intelligence. The banking system must always be prepared for these risks. At the same time, the Banking Supervision Department is working with state bodies to ensure support for the banking system in this preparedness and to raise public awareness."
"The Banking Supervision Department, together with the Ministry of Finance and other regulators, is leading an initiative to encourage the entry of nonbank entities into the banking system to increase competition in the financial system. As part of this initiative, entities operating under a banking license and prudential supervision will be able to build a flexible business model, offer banking products, continue existing activities, and operate under licensing tailored to the scope and nature of their activities. Additionally, as part of the reform, institutional investors will be able to hold small banks."
"The banking system of tomorrow, part of which is already here, will be more balanced, diverse, and competitive. It will include large entities that benefit from economies of scale, but also additional entities that constantly challenge the big players, with the potential to grow and develop. It will be a healthier market, with mergers between participants and collaborations aiming to create real and lasting value for the customer."