The Bank's Fiduciary Duty under Israeli Law: Is There a Need to Transform it from an Equitable Principle into a Statutory Duty?

Abstract

A deep-seated rule in Israeli case law is that the bank owes a fiduciary duty to its customers. The concept of imposing a fiduciary duty on banks was adopted by the Israeli courts from the English law principle of equity. However, the Israeli courts expanded the principle far beyond its original English counterpart. The duty, under Israeli law, automatically applies to all customers for all transactions. It imposes a very high standard of conduct on the bank, and its breach grants the customer a wide range of remedies. Over the years, this concept of the bank having a fiduciary duty has become a basic premise in Israeli case law. There would, therefore, appear to be no need to change the status of the bank's fiduciary duty from a case-law norm into a statutory rule. However, this paper argues that, for different reasons, there is, indeed, a need to entrench the bank's fiduciary duty in statutory law. The paper examines the advantages and risks involved in such a process; assesses the potential effects of legislation on the conflicting interests of the bank and the customer; and reaches the conclusion that the time has come to transform the equitable doctrine of the bank's fiduciary duty into a statutory rule.