The worst of times for many Israeli households and small businesses continues to be the best of times for Israeli banks, who have raked in ever-fattening profits throughout the past 22 months of war.

Earlier this month, the country’s largest banks reported that their already-record profit figures had ballooned by double digit percentages, marking the latest quarter in which they have been able to show off jumbo gains to shareholders.

For many Israelis, the gut-punch isn’t only seeing the rich get richer while they struggle to make ends meet, but the fact that the windfalls are being generated on their backs.

Squeezed by slower demand and more scarce and expensive financing, households and business owners, including military reservists pulled away from work, are borrowing at record numbers, padding bankers’ wallets with high interest payments and fees, financial statements show. All the while, consumers’ own deposits are still generating only meager returns at rates a fraction of what the banks are charging.

The fact that banks are pulling in so much and paying out so little is the “main discrepancy” fueling discontent among the public, according to Michel Strawczynski, a former director of research at the Bank of Israel.

“Clearly, such huge profits are not justified when they are generated from the big difference between the credit part and the deposit part,” Strawczynski, a professor of economics at Jerusalem’s Hebrew University, told The Times of Israel. “As a customer, you have to pay a lot when you want credit, and you get much less when you have a deposit.”

Born in Uruguay, Strawczynski served as the research department director at the Bank of Israel between 2017 and 2022 and was a member of the central bank’s monetary policy committee. During his tenure, he co-chaired a committee aimed at increasing competition in the credit sector, which included officials from the Finance Ministry.

Officials believe that increasing competition would help shrink the gap, forcing banks to offer better rates and lower fees to attract business. But such schemes take time and have been met thus far with only limited success, according to Strawczynski, who proposed that policymakers could take immediate action to redistribute the banks’ skyrocketing income by slapping a tax surcharge on their excess profits, recouping extra revenue for the state’s coffers, as many European countries have already done.

“Putting some additional tax on banks’ high profits is a logical and doable move,” said Strawczynski. He noted that income is already subject to a progressive tax, which levies higher percentages on those earning more.

“We should also have a progressive corporate tax rate applied to banks, meaning that when they hit a certain profit level, they will pay a........

© The Times of Israel