• Fairness in the Israeli banking system has become a central pillar of the Bank of Israel’s work in recent years. This reflects a broader global trend: an ongoing international regulatory dialogue, including the Banking Supervision Department’s involvement in international forums on fairness, and banking systems that increasingly recognize the business value of treating customers fairly. This process is largely due to a profound change in consumer behavior and in customers’ expectations of the institutions that serve them, including the banking system. Banks that fail to recognize and respond to this shift may face adverse business consequences.
  • The interest rates banks pay their customers on deposits—or more precisely, the gap between the posted rates offered to customers on banks’ websites and the average rates actually paid by banks—indicate that more than 50 percent of customers receive interest below the average rate. A similar picture emerges with respect to fees charged for securities activity. This gap reinforces the perception that banks are acting unfairly toward their customers, and in turn prompts responses by customers (transitioning from deposits to money-market funds and similar investments), regulators and legislators (measures to increase transparency and competition), and competitors (new banks with differentiated value propositions).
  • At the same time, the banking system has also demonstrated fairness in practice. One example is the various assistance frameworks introduced in recent years. During the recent wars, and also in view of the banking system’s excess profitability, several assistance frameworks were developed for people affected by these events. These assistance frameworks were voluntary, yet the entire banking system mobilized to help customers cope with their payment burdens. The financial relief framework formulated at the Bank of Israel by the Banking Supervision Department, as a measure designed to return a certain component of the banking system’s excess profits to the public, also constitutes an example of fairness toward customers.
  • Despite growing recognition of the importance of fairness, the banking system still faces major challenges in implementing it and in determining the appropriate level of fairness for each individual bank. These challenges involve several fundamental questions: the nature of the relationship between the bank and the customer—whether the bank is selling a product or service, providing advice, executing instructions, or holding assets in trust; the point at which the relationship between the bank and the customer begins—at the marketing stage, the point of sale, or after the service has been purchased; the development of differentiated services for different customer groups—whether through personalization or based on customer profitability; and the ability to measure the business value of fairness against other business values such as efficiency and profitability.
  • The Banking Supervision Department also faces challenges in embedding fairness in the banking system. First, it must develop regulatory tools suited to the implementation of fairness, which differ from the tools used in the prudential sphere. It must also assess the level of fairness at each individual bank and strike the necessary balance with other supervisory objectives.
  • These challenges are also reflected in the surveys conducted by the Banking Supervision Department regarding customer satisfaction with banking fairness and banking services. While satisfaction levels with service quality are generally good, the banks receive lower scores with regard to the solutions they offer customers—particularly proactive solutions aimed at reducing customer costs. This is the central challenge facing the banking system.
  • To address these challenges, the Banking Supervision Department has defined fairness as a strategic objective, alongside the objectives of stability and competition. Under this objective, the Department aims to promote a culture of fairness toward customers through several areas of focus, including stronger consumer-related oversight and enforcement, improved customer service, dedicated attention to fraud, and the simplification and enhancement of transparency with regard to fees.
  • It is clear that the objective of competition supports the Banking Supervision Department’s fairness objective, as competition requires banking institutions to place the customer at the center, act transparently and fairly, and provide the best value proposition for each customer. Accordingly, the Bank of Israel is working to promote competition in the banking system through structural changes that will facilitate the entry of new participants into the banking sector. This reflects the view that a competitive banking system can reduce the cost of banking services, expand the range of products and services, create positive incentives for innovation and efficiency, and improve both customer service and public trust in the system.
  • Today’s conference, held in cooperation with the College of Management, is another tool for embedding the fairness objective in Israel’s banking system. I would like to thank the College of Management Academic Studies and the staff of the Banking Supervision Department for organizing this important conference.