"It is very important to find mechanisms to increase credit in the economy. The Bank of Israel and the Ministry of Finance are examining ways to do this. The government and the Bank of Israel must guarantee that the economy's credit mechanism continues to function," said Governor of the Bank of IsraelProf. Stanley Fischer at a special press conference for the foreign media today.
Fischer said that Israel's banking system was not suffering the same difficulties faced by banks in the US, and that there were several reasons for this. First, Israel's banking oversight and supervision is quite strict. Also the banks applied responsible credit policies. An analysis of the banks' credit portfolios found a broad diversification, with no single player accounting for a large quantity of credit.
In addition, Israel's banks had no sub-prime exposure. "Israel's banks said 'No' to this paper," said Fischer. Furthermore, he added, Israel's mortgage market is conservative, which had been a source of complaint for years but has now been proven to have been wise.
As for banking regulation and supervision, Fischer said that one of his main conclusions from the crisis was that banking and capital market supervision was vital and must be undertaken by the central bank, at least as far as the banking system is concerned.
Fischer noted that fiscal policy carried special importance in times as these. He said that the government spending growth cap of 1.7% of GDP was important and established a framework for the budget. "The deficit will be larger than expected because tax receipts are going to be less than projected as a result of the slowdown. Nevertheless, the deficit will serve as an automatic stabilizer."
Fischer continued, "The Ministry of Finance's officials are one of our great advantages. The elections will affect fiscal policy, and many things will be said during the campaign. At the end of the day, the new government will have to decide whether it will continue to conduct a responsible fiscal policy. We're ready for all eventualities."
Published by Globes [online], Israel business news - www.globes-online.com - on November 3, 2008
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