Fischer: We can't relax on real estate market

Stanley Fischer said that mortgages were safe assets for Israeli banks in the past but must be closely monitored in the future.

14 June 12 10:41, Adrian Filut

"I consider the Bank of Israel to be responsible for the stability of the banking system. That does not mean to say that we have to defend everything that the banks do, but we expect them to act responsibly, including toward households and companies, small and mid-sized businesses," said Governor of the Bank of Israel Prof. Stanley Fischer at the central bank's conference on stability of the financial system today. Fischer said that the complaints resurfaced with the Bank of Israel raised the banks' capital adequacy requirements. "They feared that the new demand would reduce credit. We achieved a good balance between the need to strengthen the banks while allowing them to grant loans. There is no contradiction between maintaining sustainable growth and protecting the stability of the banking system. That is one reason why we are very, very cautious about the real estate market.

"40% of the banks' portfolios are invested in real estate, in the broad meaning of the term, in Israel. There is no restriction on the weight of mortgages in the credit portfolio. Although there is no restriction, we closely monitor this."

Fischer continued, "We've used supervisory measures in the past to prevent problems in this market. Historically, mortgages in Israel were considered as fairly safe assets. That was true in the past. That is why there are some people who tell us that we should calm down about the mortgage and real estate market, and that is correct. But history is full of examples of assets that were safe - until they stopped being safe. That is why can cannot relax about the real estate market."

Fischer nevertheless also defended the banks, saying, "I frequently hear people saying, 'The governor is more worried about the banking system than young couples.' This is simply not true. We take care of the banking system's stability because we care about young couples. We care about everyone who lives in Israel. About half of financial crises began in the real estate market, so we will continue to be very responsible on this point."

Fischer is quite pessimistic about the global economy, and said that the Bank of Israel has contingency plans for all scenarios. "The situation in Europe is very difficult and it is not improving. There's a lot of uncertainty. It is our job at the Bank of Israel and Ministry of Finance, which bear the responsibility for protecting the economy, to be ready to deal with any problem if there are negative developments in Europe. We're ready for this, but I cannot know what will happen if one or two countries leave the euro. We succeeded in coping with the huge crisis in 2008, and I have confidence that we can protect the economy."

Published by Globes [online], Israel business news - www.globes-online.com - on June 14, 2012

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