Growth is good, but not good enough
Among other things, the central bank is criticized for out of date procedures and possible conflicts of interests on the part of employees.
In its report released today, the State Comptroller's Office finds many deficiencies in the policies for managing the Bank of Israel's foreign currency reserves. In March 2008, the bank began a process of expanding the foreign currency reserves, which rose from $28 billion to $75 billion, thanks to a purchasing program that changed its aims and methods several times.
The report states that "deficiencies were found in supervision and control of the Market Operations Division over the work of the bank's dealing room." It was found that the division had not updated some of its procedures for several years, although its working methods had changed. In addition, "treatment of the problem of possible conflict of onterests on the part of the bank's employees has not yet been completed," and the Comptroller urges that it should be completed immediately. In this context it was pointed out that there is no control on the process of receiving bids, so that there is an operational risk that an employee will not receive more than one bid, or will not choose the best bid.
Management of the bank's reserves is conducted in comparison with a benchmark portfolio, known as the numeraire, a hypothetical currency made up of the currencies of Israel's trading partners. The report criticizes the lack of transparency in setting the makeup of the numeraire, and also mentions that the audit failed to find tools with which the division could measure the overall risk of the reserves portfolio in extreme conditions.
It was also found that the foreign currency committee and the narrow monetary committee, two committee's chaired by Governor of the Bank of Israel that set policy for managing the reserves, have been acting without written procedures regulating their activity and the relationship between them.
According to the new Bank of Israel Law, any change in the principles of policy for managing the reserves requires consultation with the minister of finance, but the comptroller finds that the bank has not yet defined what such a change is. Furthermore, "at the offices of the governor and of the minister of finance there is no documentation of the content of working meetings and liaison between them that, among other things, dealt with the foreign currency reserves.
The Bank of Israel stated in response, " The Governor and management of the Bank of Israel are proud of the way the foreign exchange reserves have been managed in recent years. In terms of results, the bank's activity in this area has proven itself, to the benefit of Israel, its economy and its citizens, by supporting growth, employment, and exportswhich maintained the competitiveness of Israel's economy and contributed markedly to the success of the economy in dealing with the global financial crisis.
"The State Comptroller's report notes certain aspects that require improvement. Some of those issues were corrected during the audit process. The others are being dealt with as part of the implementation of the new Bank of Israel Law."
Published by Globes [online], Israel business news - www.globes-online.com - on October 17, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012
You comment was recieved and soon will be published.
Thank you for posting your comment, which will be reviewed for publication.
Load more comments
BlackRock Managing Director Stephen Cohen spoke at the "Globes"-BDO Ziv Haft Capital Market Conference.
Israel 11th in Bloomberg Gas Price Ranking
Israel is just below Finland in the ranking, and above Hong Kong and Britain.
Andorn: No tax hike to increase defense budget
The Finance Ministry director said more money should go to civilian services.
Tax Authority targets big spenders
Under suspicion are those who make frequent overseas trips, and unusually large capital market transactions.
Patrick Drahi ousts Eyal Ofer as richest Israeli
"Forbes Israel": Israel's 100 richest people's wealth equals 850,000 ordinary Israelis.
Police: Indict Olmert, Tel-Zur for obstructing justice
The police say Ehud Olmert and lawyer Navot Tel-Zur attempted to dissuade Shula Zaken from testifying.
Treasury forecasts just 3.1% growth in 2015
The IMF and OECD see 3.4% and 3.5% growth respectively in 2015.
TA Art Museum, Russia's Hermitage to collaborate
The announcement reflects the Tel Aviv Museum of Art's standing in the art world.
Lapid: I've learned economics at the people's expense
"A finance minister does not have to be an economist, but must know priorities."
Unemployment still falling
Israel's 5.6% unemployment rate in April is one of the lowest in the OECD.
C'tee calls for limiting cash deals to NIS 7,500
The Locker committee recommends a series of restrictions on the use of cash and checks.
Shekel strengthens as rate decision awaited
Analysts are split over whether the Bank of Israel will announce a rate cut today.
Analysts split on June interest rate decision
Even analysts who see the rate unchanged believe that it will be cut in a few months.
High Court bans yeshiva student stipends
The High Court of Justice: Yeshiva stipends discriminate against university students.
Teddy Sagi in talks to buy English football club - report
"The Reading Post": Teddy Sagi is in talks to acquire Championship side Reading.
Fitch affirms Israel's rating
The outlook for the 'A' long-term foreign currency rating is positive.
Change Israeli education from the ground up
Governments cannot reform our education system without a change in perceptions.
"You can't teach entrepreneurship"
Angel investor Zohar Gilon relies on his own judgement rather than due diligence when selecting investments.
If Rose Fostanes played basketball
Reforms in regulations for foreign caregivers are welcome, but don't go far enough.
Antitrust Authority disappoints on gas competition
The only new company that will compete against Tamar and Leviathan will own less than 8% of Israel's proven gas reserves.
When innovation means a refrigerator
Jamshyd Godrej believes economic development in India must go hand in hand with environmental and social awareness.
Prof. Zvi Eckstein supports NIS 3.30-3.40/$ floor rate
The former deputy Bank of Israel Governor is the first senior figure from the financial system to advocate a floor rate.
2013 boom year for Israeli high-tech
In the first half of the year, there was a 52% rise in demand for mobile and web developers, and salaries are up as well.
Strong shekel forces Israeli manufacturers abroad
Israeli manufacturers tell "Globes" they are losing money due to the current strength of the shekel.
"Ending QE3 will harm the economy"
Prof. Richard Clarida will tell "Globes" Israel Business Conference that the main risk to the US economy is its political system.
Israel offers favorable tax regime for companies
"Globes" and Baker Tilly Israel accountants found Israel's tax benefits are among the most attractive in the West.
Slowdown will worsen
The vested interests that continue to claim that the economy is improving are deceiving the public, says Eyal Horowitz.
Can the US maintain growth after QE3?
Leading economists will discuss "The US: catch 22 the zero interest rate" at the "Globes" 2013 Israel Business Conference.
"The worst could still be ahead in Europe"
Prof. Charles Wyplosz will discuss Eurozone recovery at the Globes Israel Business Conference on December 8-9.
"Let capital pipelines function to full potential"
Amir Bramly argues that limited investment supply is stifling small and medium Israeli companies.