Israel Central Bank Statement

Author: | Published: 5 Sep 2017
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The legislative process to establish a financial stability committee in Israel is underway, and the intention is to complete the process during the current session of Israel's parliament (the Knesset). One of the main lessons of the 2008 global financial crisis was the need to institutionalise cooperation and coordination between all the financial authorities in the country within a central body, in order to identify, assess and monitor systemic risks in normal times for the purpose of mitigating the exposure of the system to such risks and enhancing its resilience. However, Israel's success at weathering the crisis relatively smoothly may have led to the establishment of a financial stability committee in Israel to be placed on the back burner, despite the fact that its importance is obvious to all.

Following prolonged discussions between the Bank of Israel, the Government and the financial regulators, agreements have been reached regarding the composition, objectives and functions of the financial stability committee. A government bill has been published and approved by the Knesset in the first stage and was transferred to the Knesset's Finance Committee to be prepared for the final stages of legislation. The bill defines the role of the committee such that it will operate with the objective of supporting the stability and proper functioning of the financial system. For that purpose, the committee members must share relevant information and promote coordination and cooperation among the financial supervision authorities and between them and the Bank of Israel and Ministry of Finance, warn of a material systemic risk as it develops, and recommend measures to prevent or minimise systemic risk and monitor compliance with its warnings and recommendations.

Such cooperation and coordination is also important due to the changes expected in the financial system in Israel – after various reforms recently enacted to increase competition. These changes include the separation of the two largest credit card companies from the banks to become independent players, a new merchant acquirer that was recently awarded a licence, and the entry of mass financing platforms, institutional investors and designated nonbank actors to provide credit to the retail credit market.

The committee will be comprised of representatives of all relevant financial authorities, and will be chaired by the Governor of the Bank of Israel. The Bank of Israel will lead and manage the committee's work, and for that purpose a division was established at the Bank to deal with financial stability. Since 2014, it has published Israel's semi-annual Financial Stability Report, and it conducts research on financial stability issues.

The most recent Financial Stability Report, indicates that Israel's financial system remained stable, against the background of accommodative monetary policy in Israel and around the world, and despite the shocks in the global financial markets. The banking system's stability has improved, with the upward trend in the accumulation and strengthening of capital at the Israeli banks continuing and improved liquidity. Insurance companies in Israel also increased their equity to meet the new repayment ability regime.

To conclude, the operative authority and responsibility for financial stability essentially remains that of the financial regulators or, in the case of a financial crisis, the Government. The financial stability committee will make it possible to fulfil this responsibility by institutionalising coordination and cooperation among all these bodies, and warn the financial authorities when it identifies a material systemic risk, and to recommend means for preventing or minimising that risk.

 


 

 

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