Bank of Israel to form financial stability committee

Central bank governor will chair committee aimed at co-ordinating regulators

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David Vaaknin

The Bank of Israel has finally been given the go-ahead to establish a financial stability committee, four years after former governor Karnit Flug first proposed the initiative.

The central bank said in a statement on November 27 it “commends the legislative amendment” passed by Israel’s parliament the previous day.

The new committee will be chaired by the central bank governor. It will consist of representatives from the three institutions responsible for various aspects of macro-prudential policy in Israel: the central bank, the Ministry of Finance and the Israel Securities Authority (ISA).

Amir Yaron is due to take up the governor’s role on December 24, after being nominated by prime minister Binyamin Netanyahu and confirmed by his government’s cabinet ministers.

Some observers of Israeli politics have suggested that Netanyahu and finance minister Moshe Kahlon did not offer Flug a second term as governor due to resentment of her criticisms of the government’s fiscal stance.

Flug has increased the central bank’s involvement in financial stability in her time leading the central bank. She was appointed governor in November 2013, after five months holding the role in an acting capacity.  

The Bank of Israel was given a mandate to “support the stability and orderly activity of the financial system” in 2010 and has since created a new financial stability division in its research department. The International Monetary Fund recommended that the bank bolster its work on financial stability in 2014.

In the same year, under Flug’s leadership, the BoI published its first financial stability report after more than a decade without publication.

“The numerous participants in the credit market and the division of responsibility among the various regulators require a view of the overall system and close co-ordination among regulators,” the BoI said in its statement.

But the central bank said it believes the establishment of the new committee will streamline the management of financial stability. The new committee, whose first meeting will be held in the coming months, will be made up of personnel from each of the three regulatory authorities.  

Along with the governor, the Bank of Israel’s deputy governor, head of payments oversight and supervisor of banks will also sit on the committee.

The finance ministry’s director-general, who will act as the alternate chairperson, will be joined by the ministry’s accountant-general.

The chairman of the ISA will also sit on the committee, along with the commissioner of capital markets, insurance, and savings, head of the capital markets regulator. The head of the National Economic Council, meanwhile, will serve as an observer.

Before its initial meeting, the Bank of Israel said its staff will “accelerate” work to ensure the committee’s work procedures have been finalised.

No further information regarding the committee’s mandate has yet be made public.

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