Banking Supervision Department of the Bank of Israel

The **Banking Supervision Department of the Bank of Israel** is the Israeli central bank unit responsible for supervising and regulating the country’s banking system. It operates under the Bank of Israel and focuses on bank stability, protection of depositors’ funds, proper conduct of banking corporations, and fairness in bank-customer relationships.^[1]

Institutional role

The Banking Supervision Department is the principal banking regulator in Israel. It is part of the Bank of Israel, which lists “supervising and regulating the banking system” among the central bank’s statutory functions.^[2] The department’s work is connected to the public character of banking: households and businesses place deposits with banks, while the banks use those funds to provide credit and payment services across the economy. Because disruption in banking can affect payments, savings, credit allocation and confidence, Israel maintains a dedicated supervisory function for banks.^[1]

The department is led by the Supervisor of Banks. As of the latest Bank of Israel information found for this entry, Daniel Hahiashvili serves as Supervisor of Banks. The Bank of Israel announced his appointment in June 2023, with entry into the position on June 22, 2023, following the end of the previous supervisor’s term.^[3] The position is not only administrative: public Bank of Israel releases describe the Supervisor as setting supervisory strategy, speaking for the department on policy priorities, and issuing supervisory communications to the banking system.^[3][4]

The Banking Supervision Department should be distinguished from other Israeli financial regulators. The Israel Securities Authority regulates securities markets and public-company disclosure, while the Capital Market, Insurance and Savings Authority is responsible for insurance, pensions and long-term savings. The Banking Supervision Department’s remit centers on banking corporations and the conduct, capital, risk management, reporting, licensing and customer-service rules that apply to them.

Legal basis and mandate

The department’s authority is rooted in the Bank of Israel’s statutory role. The Bank of Israel’s official supervision page cites Section 4(7) of the Bank of Israel Law as requiring the Bank to engage in “supervising and regulating the banking system.”^[1] The Bank of Israel’s broader institutional description states that the central bank’s objectives include maintaining price stability, supporting government economic objectives, and supporting the stability of the financial system.^[2] Banking supervision is one of the channels through which the central bank contributes to financial-system stability.

The department’s mandate has three core elements. First, it supervises the stability of banking corporations, including protection of depositors’ money.^[1] Second, it works to maintain the proper conduct of banking corporations.^[1] Third, it seeks fairness in business relations between banks and customers.^[1] These three elements place the department at the intersection of prudential supervision and consumer-facing conduct regulation.

In practice, the legal mandate is implemented through a range of instruments. The Bank of Israel states that the Banking Supervision Department publishes the laws, directives and guidelines pursuant to which banking corporations must operate.^[1] Its public materials group these publications into categories such as legislation, policy, drafts for public comment, Proper Conduct of Banking Business Directives, Reporting to the Public Directives, Reporting to the Banking Supervision Department Directives, circulars, letters, and questions and answers.^[1] This means the department’s work is both rule-making and supervisory: it writes or administers rules, obtains information from banks, and monitors compliance.

Historical development

The Banking Supervision Department’s institutional history predates the present Bank of Israel framework. The Bank of Israel states that, when the central bank was established in 1954, it took over the Banking Supervision Department of the Ministry of Finance.^[2] This transfer placed banking supervision within the central bank at an early stage in Israel’s state and financial-market development. The same Bank of Israel history notes that the Bank of Israel Law, 5714-1954 was passed by the Knesset on August 24, 1954 and became effective on December 1, 1954, the date on which the Bank of Israel was officially established.^[2]

The Bank of Israel’s institutional description also records that the modern Bank of Israel Law, 5770-2010 became effective on June 1, 2010.^[2] That law reorganized the central bank’s governance and objectives, including the formal statement of the Bank’s functions. For the Banking Supervision Department, the key point is that bank supervision remained a central-bank function under the modern legal framework. The department therefore sits within a central bank that is also responsible for monetary policy, foreign-exchange reserves, payment and clearing systems, currency issuance, credit-data infrastructure, and economic data and analysis.^[2]

Supervisory activities

The department’s activities can be understood across several recurring functions: prudential supervision, conduct supervision, regulation, reporting, licensing, enforcement, and public communication.

Prudential supervision addresses the resilience of banks. It includes monitoring capital, liquidity, credit risk, market risk, operational risk, governance, cyber risk and business continuity, although the exact requirements are set through detailed directives and supervisory communications. The public rationale is the protection of depositors and the maintenance of confidence in essential banking services.^[1] In public remarks in 2024, the Supervisor of Banks described stability as including the safeguarding of public money held in the banking system, continuity of banking services in normal times and emergencies, and the ability of banks to continue serving as a financing channel for the economy.^[4]

Conduct supervision addresses the relationship between banks and customers. The Bank of Israel’s supervision page explicitly includes “maintaining fairness in the business relations between the banks and their customers” as part of banking supervision.^[1] The Bank also maintains public-facing channels for consumer enquiries and complaints, and its website refers to the Banking Supervision Department’s handling of public enquiries and complaints.^[5] This consumer-facing role is especially significant in a concentrated banking market where major banks provide deposit accounts, credit, mortgages, payment instruments, and digital-banking services to a large share of the population.

Regulatory work includes the issuance of directives and draft directives. The Bank of Israel’s public listing of supervisory publications includes Proper Conduct of Banking Business Directives, circulars, letters, and reporting directives.^[1] These instruments are the formal mechanism through which many supervisory expectations are communicated to banks. The department also publishes drafts for public comment, which allows market participants and other stakeholders to respond before certain rules are finalized.^[1]

Licensing is another core tool. The supervision page lists licensing among the department’s policy and regulation areas.^[1] Licensing matters are important for entry into banking, control of banking corporations, new bank activity, and changes in ownership or structure. In 2026, the Bank of Israel described a draft directive for a “Supervisory Framework for Small and New Banks” as part of efforts to support new entrants and competition, while maintaining a supervisory framework suited to their size and risks.^[6]

Enforcement and sanctions are also part of the toolkit. The supervision page identifies “Financial Sanctions” as an additional information area and states that the department publishes laws, directives and guidelines governing banking corporations.^[1] Enforcement gives supervisory requirements practical force and can cover breaches of directives, reporting failures, or other misconduct, depending on the applicable legal basis.

Publications and transparency

The Banking Supervision Department is an important source of information about Israel’s banking system. Its main recurring publication is the annual survey of Israel’s banking system. The Bank of Israel’s website identifies the Banking Supervision Department’s annual survey as one of its reports, and the 2024 annual survey is published under the department’s name.^[1][7] These surveys provide a system-wide view of bank performance, balance-sheet developments, credit, risk, profitability, capital adequacy, consumer issues, and regulatory priorities.

The department also publishes specific surveys and reports, including surveys on bank-customer relations.^[1] Public-facing surveys are significant because they connect supervisory policy to customer experience, not only to bank balance-sheet indicators. They also allow the department to compare service quality, transparency, fees, access, and digital-banking performance across institutions, where such information is collected and disclosed.

The publication framework is part of a wider Bank of Israel commitment to public communication. The Bank of Israel says it acts to increase public awareness of its activities through publications, press releases and other channels.^[2] For banking supervision, this communication function serves several purposes: it informs the public, signals supervisory priorities to banks, supports parliamentary and public accountability, and provides data for analysts, researchers and policymakers.

Relationship with banks and the banking system

The department supervises Israeli banking corporations and related supervised entities rather than acting as a commercial participant in the market. Its relationship with banks is therefore regulatory, not competitive. It collects reports, issues directives, examines banks’ activity, reviews bank governance and risk controls, handles licensing matters, and intervenes through supervisory channels when risks or conduct issues arise.

Several large domestic banks are central to the supervised system, including Bank Hapoalim, Bank Leumi, Israel Discount Bank, Mizrahi-Tefahot Bank and First International Bank of Israel. The department’s mandate applies across the banking system and is not limited to the largest banks. It also has relevance for newer institutions such as Digital Bank One Zero, for specialized banks, and for banking-service providers that fall within its supervision.

The department’s work also intersects with payment systems and bank-owned payment services. The Bank of Israel as a whole is responsible for regulating the economy’s payment and clearing systems.^[2] The Banking Supervision Department’s oversight of banks therefore affects how banks manage payment apps, cards, operational resilience, cyber risk, and customer access to payment services. Israel’s payments infrastructure also includes entities outside the banking supervisor’s direct institutional identity, such as Shva, but banks’ use of these systems is subject to supervisory expectations where banking risks and customer conduct are involved.

Competition, innovation and new entrants

In addition to stability and fairness, the department has been involved in reforms intended to promote competition and innovation in Israeli banking. The Bank of Israel’s 2023 announcement of Daniel Hahiashvili’s appointment noted that, in his earlier role as head of the Technology and Innovation Division in the Banking Supervision Department, he promoted projects related to competition and innovation, including open banking implementation in Israel, reforms involving credit-card companies, payment applications, and banking regulation in technology and cyber areas.^[3]

The Bank of Israel has continued to present competition and innovation as supervisory themes. In 2026, the Banking Supervision Department published for public comment a draft directive on regulatory adjustments for small and new banks. The Bank described the step as part of opening the banking system to new entrants and encouraging competition, while creating a supervisory framework for small and new banks.^[6] Such efforts illustrate the department’s dual challenge: lowering unnecessary barriers to entry or innovation without weakening prudential safeguards.

Innovation also changes the supervisory perimeter in practical terms. Digital onboarding, open banking, cloud computing, cyber risk, artificial intelligence, instant payments, and app-based services can improve access and efficiency but also create operational, privacy, outsourcing and consumer-protection risks. The department’s public materials list “Technology and Innovation” as one of the policy and regulation areas within banking supervision.^[1]

Crisis and emergency functions

Banking supervision becomes especially visible during emergencies. The department’s focus on continuity of banking services is relevant during wars, cyber incidents, public-health crises, natural disasters and other disruptions. In the Supervisor’s 2024 remarks, stability was described as including the availability of continuous banking services in routine and emergency times.^[4]

The department has also coordinated customer-assistance frameworks during security-related disruptions. In 2026, the Bank of Israel said the Banking Supervision Department had established a support framework for populations directly affected by fighting related to Operation “Roaring Lion,” and noted that this was the third such relief framework in two and a half years for customers affected by security events.^[8] These frameworks show the department’s conduct role during crises: beyond monitoring bank capital and liquidity, it can help organize standardized relief measures for affected customers, subject to the structure adopted by the banks.

Emergency work can include guidance on branch access, loan deferrals, mortgage or credit-card relief, fees, business continuity, remote service, and public communication. The exact measures differ by event and by the official framework in force. The department’s involvement reflects the systemic importance of banks as providers of payment, deposit and credit services during periods of stress.

Governance within the Bank of Israel

The Banking Supervision Department operates inside the Bank of Israel’s broader governance structure. The Bank of Israel has a Governor, Deputy Governor, Monetary Committee and Supervisory Council, among other bodies. The Supervisory Council, established under the Bank of Israel Law, 5770-2010, supervises the proper and efficient functioning of the Bank, approves the Bank’s annual financial statements and administrative budget, discusses the annual work plan, and appoints an internal auditor, among other functions.^[9]

This should not be confused with the Banking Supervision Department. The Supervisory Council supervises the Bank of Israel as an institution, whereas the Banking Supervision Department supervises the banking system. Both use the word “supervision,” but they are different bodies with different purposes. The Banking Supervision Department is the sectoral banking regulator; the Supervisory Council is an internal governance and oversight body for the central bank.

Significance

The Banking Supervision Department is significant because banking is a critical infrastructure of the Israeli economy. Its decisions affect deposit safety, bank capital and liquidity management, credit availability, mortgage practices, fees, digital banking, complaint handling, and the conditions under which new banks can enter the market. It also influences the resilience of the financial system during stress events.

For households and businesses, the department’s most visible functions are usually consumer protection, complaint handling, banking-service fairness, and emergency relief frameworks. For banks and investors, the most visible functions are capital, liquidity, governance, reporting and licensing requirements. For policymakers, the department is a key source of system-wide analysis through its annual surveys and a central participant in discussions about competition and innovation in Israeli finance.

The department’s role is therefore broader than narrow bank inspection. It is a prudential authority, a conduct regulator, a rule-making body, a collector and publisher of banking-system information, and a participant in the modernization of Israel’s financial infrastructure. Its location within the Bank of Israel connects banking supervision to the central bank’s wider responsibilities for financial stability, payment systems, economic analysis and public confidence in money and banking.