Banking in Israel

Bank Leumi, Bank Hapoalim, Israel Discount Bank, Mizrahi Tefahot, and First International Bank of Israel are the five largest banks in Israel.[6] Alongside these groups, the system includes smaller Israeli institutions and foreign banks, while the Bank of Israel regulates banking activity and conducts monetary policy.[7] A 2026 assessment described all Israeli banks as privately owned and reported that Leumi and Hapoalim together controlled more than half of the credit market.[7]

Israeli banking combines deposit-taking and lending with infrastructure for transferring money, clearing checks, settling transactions, and processing card and ATM payments.[2] Historically, its large institutions operated under the European universal-banking model, providing a broad range of financial services rather than specializing exclusively in conventional deposits and loans.[8] By 1999, short- and long-term credit, project financing, and access to venture capital were available through the local banking system.[8]

Concentration, financial stability, and competition are recurring themes in the sector’s development.[3] The Banking Supervision Department’s primary objectives include the stability of banks and credit-card companies and a fair culture toward customers, with fostering competition as a secondary objective.[3] Recent reforms have sought to reduce information advantages enjoyed by established institutions, simplify switching between banks, and allow additional providers to participate in financial services.[2][3]

The proposal for a bank supporting Jewish settlement in Palestine emerged at the First Zionist Congress in 1897 and was implemented in Palestine by 1903.[4] The Anglo-Palestine Company was founded by the Zionist Organization in 1902 and began operating in Palestine the following year; it later became the Anglo-Palestine Bank and eventually Bank Leumi.[9] Its financing supported Jewish settlements, settlement organizations, construction in parts of Tel Aviv, and industries intended to build the Jewish national home.[4]

Modern banking developed near the end of the Ottoman period and subsequently under British Mandate legislation.[9] From the early 1920s, Jewish financial institutions included commercial banks, cooperative savings-and-loan associations, mortgage banks, and investment companies, often supported by Zionist capital from Britain and the United States.[9] Barclays, successor to the Anglo-Egyptian Bank, served as both a government and commercial bank, while the Anglo-Palestine institution was the largest and most important Jewish bank.[9]

Bank Hapoalim originated in 1921, with early lending directed toward labor settlements and Histadrut enterprises; the Central Bank for Cooperative Institutions followed in July 1922.[9] Other major institutions had organizational or private origins: Mizrahi was founded by the Mizrahi movement, Discount by the Recanati family, and Hapoalim by the Histadrut together with the World Zionist Organization.[10] A historical account dates Mizrahi’s foundation to 1923 and Discount’s to 1935, and identifies 1934 as General Bank’s founding year.[11] First International was formed in 1972 through a merger of existing banks associated with Finance Minister Pinhas Sapir.[11] None of the five large commercial banks was established directly by the State of Israel, although First International’s formation involved state support.[10]

Banking expanded rapidly during the 1930s as economic activity, capital imports, and immigration increased.[5] One historical series records growth from 75 banking institutions in 1931 to 134 in 1936.[5] Registration records separately identify 46 new banking associations between 1932 and 1935 and, at the end of 1936, 74 banks and approximately 100 cooperative associations.[9] Immigrants with banking expertise, including bankers from Germany, contributed to this expansion.[9] By 1936, Anglo-Palestine held more than one-third of deposits and a credit portfolio larger than that of all foreign-bank branches combined.[5]

Expansion was followed by withdrawals and tighter regulation.[5][9] A depositors’ scare beginning in August 1935 produced four months of withdrawals, and a rescue effort by Barclays and Anglo-Palestine, encouraged by the Mandate government, prevented collapse.[9] Further runs occurred in the summers of 1938 and 1939 amid the Munich and Polish crises, following the earlier crisis associated with Ethiopia.[5] There was no central bank acting as lender of last resort, but Anglo-Palestine provided a special discount facility supporting other local banks, and the Jewish banking sector survived the runs.[5]

Legislation adopted in 1936–1937 required licenses, minimum capital, regular publication of financial statements, and directors of personal probity, and established government bank supervision.[5] These measures restricted the establishment and continued operation of banks and helped eliminate weaker institutions.[5][9]

Deposits and lending were unevenly distributed among the period’s Jewish, Arab, and foreign banking institutions.[5] Arab banks held 2 percent of deposits in 1938 and 7 percent in 1946, compared with Jewish banks’ respective shares of 76 and 79 percent.[5] In 1946, Anglo-Palestine’s credit allocation was three times that of all other foreign banks combined, while Jewish banking institutions accommodated 85 percent of outstanding credit during the 1940s.[5]

From the beginning of the twentieth century, especially during the Mandate, Jews who later became Holocaust victims deposited money in Palestine’s banks.[9] Their purposes included supporting Zionist development, transferring capital out of Europe, and obtaining the financial qualifications needed for immigration through capitalist certificates.[9] These deposits constituted between 30 and 50 percent of the banks’ capital in the early 1940s.[9]

The Palestine pound remained legal tender after independence until the currency transition of August 1948, when the government arranged with Anglo-Palestine to issue the Israel pound at a one-to-one conversion rate.[5] The decision to introduce national currency had been delayed partly because the UN plan envisaged a customs union and shared currency; shortages before the transition produced substitutes including municipal coupons.[5]

The Bank Notes Ordinance took effect on August 17, 1948, enabling Anglo-Palestine to issue banknotes through a special Issue Department under a government charter.[1] Monetary policy and banking supervision remained the responsibility of the Ministry of Finance.[1] Establishing a central bank had been postponed because of the War of Independence and other pressing needs.[12]

On August 24, 1954, the Knesset passed the Bank of Israel Law by 55 votes to none, with 14 abstentions.[12] It took effect on December 1, when the Bank of Israel formally opened and assumed the Anglo-Palestine Issue Department and the Finance Ministry’s Banking Supervision Department.[1] The bank received initial capital of 10 million pounds, and David Horowitz became its first governor.[12] Its statutory task was to “administer, regulate and direct the currency system and to regulate and direct the credit and banking system in Israel, in accordance with the economic policy of the government.”[12]

Foreign-exchange control was transferred to the central bank in 1978.[13] The Bank of Israel became completely independent in 1985 and, from 1992, conducted monetary policy toward an inflation target set by the government.[13] A replacement law passed in March 2010 took effect on June 1, establishing price stability as the central objective and independence in choosing policy instruments and implementing decisions.[12][13]

The 2010 law also requires support for government economic objectives, particularly growth, employment, and reducing social gaps, provided this does not prejudice price stability over time.[14] Supporting financial-system stability and orderly activity is another statutory objective.[14] The bank’s functions include managing monetary policy and foreign-currency reserves, acting as government banker, issuing currency, regulating payment and settlement systems, and supervising banking.[14] Advising the government on economic matters is also among its functions.[1]

A six-member Monetary Committee determines policy, monitors implementation, and decides actions including the policy interest rate, while a Supervisory Council oversees managerial decisions.[13][14] With the committee’s approval, the governor can require banking corporations to hold liquid assets in specified proportions and compositions.[14] Failure to comply can result in interest charges on the shortfall and instructions limiting or discontinuing credit, investments, or profit distributions.[14]

By the end of 1982, shares registered on the Tel Aviv Stock Exchange were valued at more than US$17 billion, more than twice their real value a year earlier and five times their 1979 value.[15] This expansion occurred despite stagnant GNP growth and a worsening trade and debt position.[15] Between 1975 and 1983, corporations increasingly raised capital on a shallow, poorly regulated exchange where many shares were highly overvalued and carried little or no voting rights.[15] Banks simultaneously acted as brokers, underwriters, issuers, fund managers, advisers, and investors.[15]

Artificial support for bank-share prices involved several major institutions, including Leumi, Hapoalim, Discount, Mizrahi, and General Bank.[10] Bank advisers encouraged customers to purchase bank shares, sometimes with borrowed money, while bank-managed investment bodies also bought them.[10] Rising prices and expectations of continuing returns facilitated further share issues.[10] The practice began at Hapoalim and spread, with First International an exception; in the 1970s, bank issues reached 93 percent of all market share issues.[16] Leumi, Hapoalim, and Discount began financing regular share-price increases in March 1981.[16]

The exchange fell sharply in January 1983, with many speculators losing 50–70 percent of their stock values within days.[15] Bank-share selling intensified during the summer and peaked in October as investors shifted from shekel assets toward foreign currency.[15] Expectations of a major devaluation reinforced this movement, and banks initially brought in capital from abroad to sustain share-price support but could not maintain it against accelerating sales.[10]

The Tel Aviv Stock Exchange closed on October 6, 1983, and the government intervened to prevent a banking-system collapse.[10][15] During the closure, a bank-share arrangement was developed under which the state effectively acquired public holdings and the banks passed into state ownership without direct government management of their ordinary operations.[10] The arrangement placed shares in seven banks or banking companies under government custody: Leumi, Hapoalim, Discount, IDB Holdings, Israel General Bank, Union Bank, and United Mizrahi.[17]

Government support for bank-share prices through Bank of Israel purchases cost about 4 percent of GNP, and state ownership by the end of 1983 amounted to effective nationalization of almost the entire banking system.[5] The government undertook in 1988 to secure an obligation of approximately US$7 billion represented by public bank-share holdings at their pre-crash dollar value.[15]

Privatization proceeded through public offerings and sales of controlling interests.[17] Between December 1991 and August 1996, nine transactions involving seven banks raised approximately US$1.55 billion in immediate and future proceeds.[17] Purchasers of controlling interests required Bank of Israel approval.[17] The 1993 Law for the Arrangement Bank Shares established disposal of the government’s shares and avoidance of bank operation as policy objectives, provided for structural changes, and created trustee committees to direct each bank’s affairs until sale.[17]

By 1999, the government still owned several large banks but was privatizing them without interfering in day-to-day management.[8] Substantial Leumi holdings and the controlling interest in Discount were sold in 2005.[5] Privatization of the large banks nationalized after the crisis was completed in 2018, when the government sold its remaining 5.4 percent Leumi stake to Citibank for NIS 1.9 billion.[18]

In the 1988 financial system, five major groups—Hapoalim, Leumi, Discount, United Mizrahi, and First International—dominated banking, and the three largest held more than 80 percent of total assets.[15] Lending and borrowing rates were set in an oligopolistic environment with little competition.[15] Restrictions on private corporate bond issuance, government influence over interest rates, and high, unpredictable inflation generated excess investment demand and continuing loan rationing, giving the government an implicit role in approving projects and shaping industrial policy from the late 1960s.[15]

Asher Blass characterizes the early-1980s system as dominated by banks and government, with the government acting as both major borrower and creditor and channeling funds through subsidized bonds and financial intermediation.[19] He places the three largest banks’ share at approximately 85 percent of banking activity and links their subsequent government takeover to the institutional background of reforms following the 1985 stabilization plan.[19]

Blass identifies the reforms’ goals as reducing government involvement in capital markets, increasing capital mobility, promoting financing competition, and developing the stock exchange.[19] In his interpretation, a lower deficit after 1985 and declining domestic public debt relative to GDP during the growth of the 1990s reduced the government’s funding needs, making withdrawal from financial intermediation possible.[19] He describes reforms that relaxed provident funds’ compulsory government-bond investments, encouraged more liquid and equity investments, gradually eliminated government-directed credit to exporters and manufacturers, and eased restrictions on corporate bond and share issuance.[19]

A historical study of financial liberalization describes the markets as essentially nationalized by 1985 and identifies 1987 as a starting point for measures encouraging competition, relaxing international capital-flow restrictions, lowering deposit liquidity requirements, and eliminating quotas on foreign-currency credit and bank guarantees.[20] It reports that institutional investors gained greater investment freedom in 1987 and that their compulsory government-bond allocation declined from more than 80 percent to 40 percent by the period it examined.[20] The study links liberalization to increased Israeli and foreign participation in the stock exchange and dates the acceleration of privatization to a detailed policy established in 1993, with a peak in 1997–1998.[20]

Blass also identifies late-1980s and early-1990s concern about conflicts among commercial banks’ different activities, noting the Brodet committee’s recommendation to limit bank holdings in nonbank companies through divestitures.[19] The liberalization study describes concentration as unfinished reform business and recounts a 2004 dispute in which Finance Minister Benjamin Netanyahu pressed for greater competition against bank opposition, ultimately securing significant changes.[20]

The Bachar reform, beginning in August 2005, separated banks from management of the public’s provident and mutual funds to address concentration and conflicts in financial-product sales and advice.[21] Banks sold these businesses to insurance companies and investment houses for billions of shekels.[21]

Later measures targeted retail competition and information barriers.[3] Credit-card-company separation measures date to 2018, while the Bank of Israel’s credit-data register was established in 2019 to reduce information gaps between large and smaller lenders.[3] A 2021 mortgage reform made offers easier to compare, and open banking enabled customer-authorized sharing of financial data with third parties.[3] Since 2021, customers have been able to switch banks online without charge within seven business days; approximately 100,000 applications and more than 65,000 successful switches occurred in the first year.[3]

In March 2024, the Competition Authority commissioner intended to declare the five largest banks a concentration group in retail banking, subject to a hearing and consultation with financial regulators.[6] In April 2025, a joint regulatory team proposed a lean, modular banking license that could allow qualifying credit-card companies and large businesses to accept deposits, subject to capital, liquidity, and other requirements.[22] The proposal aimed to increase small- and medium-sized-business credit competition and improve the speed and extent of interest-rate transmission to depositors; it was an interim proposal rather than an implemented reform.[22]

Israel’s supervised-institution list includes 11 Israeli banks, among them the five largest institutions and One Zero Digital Bank.[23] Four foreign banks are listed separately: Barclays, Citibank, HSBC, and State Bank of India.[23] The same supervisory framework includes the joint-services company Bank Clearing Center Ltd., known as MASAV, and merchant acquirers including Cal, Max, and Isracard.[23]

The 2025 OECD survey records five groups holding 98 percent of banking assets, with two independent banks and four foreign-bank branches accounting for only a small share of domestic credit.[3] Consolidation over several decades reduced the number of commercial banks, with mergers beginning primarily in the 1990s.[3][24] In the 2022-era banking survey, medium-sized institutions had gained share at the expense of large banks, although the two largest still held approximately 57 percent of system assets.[24]

One Zero became Israel’s first new bank in 43 years when restrictions on its license were removed in January 2022.[25] Licensing involved operational preparation, information systems, infrastructure, connections to payment and settlement systems and monetary tools, a pilot, and the required capital raising.[25] Supervisory review covered information security, cyber protection, technological risk, risk-management quality, and control tools.[25]

At the beginning of 2012, Israel had 1,421 bank branches, equivalent to 18.1 per 100,000 people using an end-2011 population of 7,837,000.[26] The count included branches in Jewish settlements in the West Bank — known by its original, indigenous Jewish name of Judea and Samaria.[26] This branch-to-population ratio was lower than in most European countries and the United States, although Austria’s was lower.[26]

Jerusalem had 138 commercial branches, approximately one-tenth of the national total, and 17.5 branches per 100,000 people using its end-2010 population of 788,000.[26] Tel Aviv-Jaffa’s ratio was 65 per 100,000 residents, reflecting its role as a financial and metropolitan center serving customers beyond its municipal population.[26] Fixed branches declined consistently over the decade preceding the 2022 banking survey, partly offset by partial and mobile branches, while transactions through direct channels increased significantly during 2022.[24]

Credit arrangements have changed substantially from the directed system documented in 1988.[15][19] At that time, short-term directed credit was supplied through joint central-bank and commercial-bank funds, primarily for exporters’ working capital; three-quarters of those funds were denominated in foreign currency, with interest based on dollar credits.[15] Overdrafts were a major form of nondirected short-term lending.[15] Loans exceeding approximately 18 months were mainly government-directed, supervised through investment-finance banks, with government generally determining incentives and financing.[15]

Commercial banks broadly focus on short-term business, while development-bank lending has served medium- and long-term needs in agriculture, industry, housing, and shipping.[27] By 1999, most loan and project-financing forms available in industrialized countries were also available in Israel.[8] Ordinary banking fees remained higher than in the United States in the 2026 assessment, which also identified shortcomings in some services relative to US standards.[7]

ZAHAV, operated by the Bank of Israel, is Israel’s real-time gross settlement system, providing final settlement in real time and serving as final settler for the country’s payment and settlement systems.[2] MASAV operates debit, credit, transfer, and faster-payment systems, while SHVA operates card-payment and ATM systems.[2] Commercial banks, foreign banks, credit-card companies, and settlement companies participate in the broader framework.[2]

Shared ATM access developed through cooperation among competing banks.[28] Initially, customers could withdraw cash only from their own bank’s machines: a Hapoalim customer, for example, could not use a Leumi ATM.[28] The banks’ Automated Banking Services company subsequently installed machines in public locations, followed by agreements allowing customers to use all banks’ ATMs in Israel.[28]

The Payment Systems Law of 2008 established operational and payment-finality rules and authorized the Bank of Israel to designate and oversee controlled systems.[2] A 2017 law implementing principal Strum Committee recommendations amended licensing rules to prevent banks above a specified asset threshold from issuing or settling payment cards, seeking to separate card companies from large banks and encourage retail-credit competition.[2] Max’s separation from Leumi was completed in 2019 and Isracard’s from Hapoalim in 2020.[2]

The Regulation of Payment Services and Payment Initiation Law of 2023 took effect at the beginning of June 2024.[2] It authorizes the Israel Securities Authority to license and supervise qualifying nonbank payment-service and basic payment-initiation providers, including requirements for information security and risk management.[2] Related measures seek to expand nonbank access to ZAHAV and systems operated by MASAV and SHVA, increasing competition and reducing dependence on banks.[2]

For 2023, system availability was 99.905 percent for ZAHAV and 100 percent for the MASAV credits, debits, and transfers system, ATM system, card-payment system, and paper-check clearinghouse.[2] The central bank operates ZAHAV and the check-clearinghouse and continuously monitors payment operations for failures and operational, technical, or business disruptions.[2]

Financial-sector cyber cooperation also raised questions about information sharing between competitors.[28] Automated Banking Services considered establishing a financial cyber center and submitted the proposal to the Antitrust Authority’s director general for assessment under antitrust regulations.[28] A financial cyber center was subsequently decided upon within the national Cyber Event Readiness Team, with balancing banks’ contributions to information gathering and sharing identified as a challenge.[28]

Nonperforming loans amounted to 0.8 percent of total lending in mid-2024, half the OECD average, and to 4.5 percent of bank capital after loan-loss provisions were deducted.[3] Banks maintained high capital and liquidity ratios during 2025 despite ongoing conflicts.[7] Following the Supervisor of Banks’ November 2023 call for prudent, conservative dividend policies, banks reduced the proportion of profits distributed to shareholders.[3]

The Banking Supervision Department is responsible for banking-system stability, while the Payment Systems Oversight Division oversees payment-system stability and efficiency.[29] Oversight extends beyond the soundness of individual institutions to connections among financial institutions, markets, and payment and settlement systems, including their exposure to external shocks.[29]

Banking has supported distinct stages of Jewish and Israeli economic development, from financing settlement, urban construction, and national-home industries to supplying business credit and maintaining the modern payments framework.[4][2] Its institutional development has combined private and organizational founding initiatives, periods of extensive state involvement, privatization, and continuing public supervision.[10][17] Contemporary reforms retain this combination of regulated stability and efforts to widen entry, customer mobility, and access to financial infrastructure.[2][3]

The 1983 crisis exposed serious conflicts arising from banks’ simultaneous roles as share issuers, advisers, investors, and fund managers.[15] The Bejski Commission criticized sustained artificial share-price support as a danger to bank stability, and a subsequent court ruling found bankers and their accountants guilty.[16] Estimates of the intervention’s cost differ, with figures of approximately US$7 billion and US$9–10 billion appearing in retrospective accounts without an explained reconciliation of their accounting scope.[10][16]

Assessments of competition reforms also differ.[19][21] Blass argues that foreign borrowing became easier and some lending rates showed greater competition, while noting continuing criticism that competition remained insufficient.[19] A 2025 retrospective of the Bachar reform records former regulators’ assessments of stronger competition and nonbank business credit alongside criticism that household-credit competition was inadequately addressed and bank distribution fees remained a consumer cost.[21]

A peer-reviewed qualitative study of recruitment sources for bank chairpersons and chief executives from 1948 to 2019 argues that Israel’s central bank influenced those recruitment sources through formal and informal measures. The study contends that this influence enabled regulators to wield influence over banks and support long-term financial stability.[30]