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​The Bank of Israel today is publishing the main provisions of its work plan and administrative activity budget for 2016.

 
The Bank of Israel’s Supervisory Council[1] discussed the Bank’s annual work plan, approved the Bank’s annual budget for administrative activities, and submitted the budget to the Knesset Finance Committee, as required by the Bank of Israel Law, 5770–2010. The budget was constructed with the goal of allowing the Bank to carry out its functions and to achieve its primary targets for the year.
 
The Bank of Israel based its 2016 work plan and budget on the bank’s strategic targets, formulated last year, for the years 2015–17. These targets were formulated while taking into account the changes and challenges expected in the Israeli and global economies during this period.
 
 
Following are the primary targets set by the Bank’s management for the coming years:
 
1.      Implementing monetary policy and managing the foreign exchange reserves in accordance with the economic environment
The challenge inherent in managing monetary policy in a low interest rate environment requires the Bank of Israel to make informed use of monetary tools that are appropriate to this interest rate environment. At the same time, expectations for a global economic recovery require the Bank to prepare for a return to normal for monetary policy in the slightly longer term. To that end, the Bank of Israel will continue to align the macroeconomic projection abilities to conditions created after the crisis and to take into account considerations related to financial stability when formulating monetary policy.
 
In 2016, the Bank of Israel will continue to examine the possibility of investing the foreign exchange reserves in new countries and instruments, in accordance with the risk profile defined by the Monetary Committee and with the global and domestic macroeconomic environments.
 
2.      Strengthening the economy’s resilience to crises
An economy’s financial and economic resilience is reflected in, among other things, its ability to deal with crises and to get through them in an optimal manner. In order to bolster the financial system’s readiness to deal with various crisis events, the Bank will act through various routes—formulating and implementing steps to reduce macroprudential risk in the economy; developing and implementing bank resolution mechanisms, examining a deposit insurance mechanism that is in line with Israel’s banking system, and promoting business continuity capabilities of the banking system and of the payment and settlement systems, including in the cyber area.
 
3.      Promoting effective and reliable systems and means of payment
The Bank of Israel is responsible for, among other things, the regular supply of cash to the economy, and ensuring that there are payment systems and means of payment that serve as cash substitutes, such as checks, the Zahav (RTGS) system, the Shva and Masav (automated clearing house) systems, various payment cards, and other advanced means of payment. The Bank of Israel works to ensure the effectiveness and reliability of the various means of payment in the economy, and will act to strengthen the payment and settlement systems oversight infrastructure and to increase the use of electronic systems and means of payment.
In the coming years, the Bank of Israel will move forward with the issue of the next denominations in the new series of banknotes. So far, the new NIS 50 banknote entered circulation in 2014 and the new NIS 200 banknote at the end of 2015. The replacement of the old NIS 200 banknote with the new NIS 200 banknote will continue gradually during 2016.
 
4.      Supporting sustainable and inclusive growth
Expected demographic developments, and with them the exhausting of processes that accelerated growth in previous decades, indicate that the growth in GDP per capita could decline markedly as early as in the remainder of this decade. In order to assist in designing a policy path and processes that will contribute to increasing the potential growth of the economy, and alongside that reduce poverty, the Bank of Israel will focus its research in coming years on areas with the potential to contribute to increasing growth and distributing its benefits to various segments of the population.
 
5.      Maintaining the public’s confidence in the banking system and promoting competition in it
In order to ensure fair conduct by the banking system vis-à-vis its customers and to empower bank customers, the Bank of Israel will work assiduously for the benefit of the public on the basis of the approach that fairness, competition, and stability are complementary channels of activity that promote a strong and fair banking system that is trusted by the public. In view of the concentrated structure of the banking system in Israel and in view of the information and power gaps between banks and their customers, it is important to set rules and take actions to ensure fair conduct in the system.
Accordingly, the Bank of Israel will continue to work to increase competition in the areas of retail credit, credit to small businesses, and payment and settlement systems, through supporting structural and technological changes as well as consumer-oriented steps for the benefit of the general public, setting up a more lenient supervisory framework for financial institutions that don’t take deposits, establishing a credit register to share credit data after completion of the legislative process, promoting the fairness of banks toward their customers, and advancing financial education for the public.
 
6.      Promoting information and research that support policy decisions
The Bank of Israel will continue to upgrade economic-financial statistics and promote information that supports policy decisions by developing tools for statistical analysis and forecasting and by advancing empirical research and analytical tools that integrate various sectors.
 
7.      Maintaining banking system and payment and settlement system stability
By law, one of the Bank of Israel’s three objectives is to support the stability and orderly activity of the financial system. In the years ahead, significant changes are expected in the banking and financial systems in Israel and abroad, particularly as a result of technological changes. In line with this trend, the Bank of Israel will support and supervise the banks’ move to the new technological environment.  Likewise, the Bank will move forward with macroprudential regulation that is in line with the Israeli economy and international standards and will promote effective supervisory and enforcement processes in order to ensure compliance with the law and regulation, and the Bank of Israel will act to increase collaboration and coordination with regulators in Israel and abroad.
 
8.      Development of human capital
In order to maintain the high level of professionalism that has characterized the Bank of Israel over the years, the Bank will emphasize processes that ensure the hiring and retaining of a quality workforce with a range of talents, and the formulation and implementation of new tools to cultivate human capital.
 
9.      Bolstering the organizational preparedness for achieving the Bank’s targets
The Bank of Israel acts to bolster its operational and organizational preparedness in order to increase its efficiency and to lead to an optimal allocation of resources over time. Organizational preparedness includes integrating advanced technological systems in all areas of the Bank’s activities, promoting a risk management system and improving controls at the Bank, upgrading the Bank’s physical infrastructures, improving information and knowledge management, and advancing the Bank’s business continuity preparedness (including the cyber area). 
 
 
The Bank’s Budget
 
The Bank of Israel’s budget allocates funds for the administrative activities of the Bank, necessary for performing its functions and achieving its targets.
 
 In accordance with the Bank of Israel Law, the Bank of Israel’s budget is divided into several areas of activity:
 
1.      Management and Central Services (the expenditure budgets of the entities that deal with the provision of services and support, and the management of the Bank);
2.      Performance of the Bank’s functions (the expenditure budgets of the departments that carry out the Bank’s functions);
3.      Representative office abroad;
4.      Pensions;
5.      Investments;
6.      Income;
7.      Reserve;
8.      Currency issue.
9.      Operation of the Citizens of Israel Fund[2] for natural gas profits (the expenditure budgets related to operational expenses of the fund that will be established to manage the State’s revenue from gas, oil, and other natural resources)
10.  Credit Data Register
 
The 2016 budget presents, for the first time, a new area of activity—Credit Data Register—in line with the proposed Credit Data Law, 5775-2015, which is in advanced legislation stages. According to the proposed law, the Bank of Israel will receive the regulatory authority in this area, and the Bank began preparing for establishment of the credit database in the first stage and then its future operation.
 
The Bank of Israel’s current expenditure budget, which includes expenditure for labor, pensions, investments, and current expenditures, is NIS 737 million for 2016, compared with NIS 749 million for 2015, and reflects a decline of 1.6 percent compared with 2015 and a decline of 6.2 percent compared with 2014. This decline reflects a contraction in the current budget of the Bank and strong budgetary discipline, particularly in light of the expansion in the Bank’s functions in recent years.
 
In addition, the budget for 2016 includes allocations for several multiyear projects: (a) The continued project of the new series of banknotes, primarily the exchange of the new NIS 200 banknote during the course of 2016; (b) the planned continuation of the project of renovating the Bank’s building in Jerusalem and construction of the Technology and Emergency Center, and (c) promoting competition in the banking system by setting up a database for sharing credit information.
 
As a result of these projects, the Bank’s overall budget for 2016 totals NIS 1,101 million, and is higher, in nominal terms, by 23 percent than the 2015 budget (NIS 894 million).
 
Following are the main changes in the Bank of Israel budget for 2016:
 
Currency issue: An increase of NIS 157.4 million (+206 percent), intended to budget for the gradual replacement by the NIS 200 banknote of the new  banknote series, which enters circulation around the end of 2015, and the Bank’s preparation for the issue of next denominations in the series.
 
Investments: An increase of NIS 50.4 million (+61 percent) deriving mainly from the progress of the project to renovate the main building in Jerusalem and the process of setting up a Technology and Emergency Center, projects that were approved in previous years and are progressing as planned.
 
Credit Data Register – A new budget allocation of NIS 20 million. Based on the proposed Credit Data Law, 5775-2015, the Bank of Israel will receive the regulatory authorities related to setting up and operating the credit data register. In light of this, the Bank has budgeted in advance the preliminary preparation required for implementing the law in 2016.
 
Reserve: A decline of NIS 25.9 million (-71 percent), deriving from the reduction of budget reserves earmarked for future agreements. The Bank’s budget for 2016 includes budget reserves that were earmarked for agreements and arrangements that have not yet been approved by the Supervisory Council and will only be released after their actual approval.
 
Pensions: An increase of NIS 2.8 million (+1 percent). The pensions budget for 2016 is impacted by a final retroactive payment in respect of the agreement signed in January 2014, based on which pension allowances will be indexed to the Consumer Price Index instead of the average wage. The cost in 2016 of the final increment is NIS 17.7 million.
 
 
 
Budget in future years: Forty-four percent of the budget for permitted commitments for coming years derives from future commitments in the area of currency issue, which are intended mainly for issuing the next denominations in the new series of banknotes. An additional 33 percent of the budget for permitted commitments in future years is intended for future investment commitments by the Bank.
 
The administrative activities budget does not include income and expenses stemming from the implementation of monetary tools, the provision of credit to banking corporations and to other financial institutions, activities related to managing liquidity in the economy, and foreign exchange reserves investments. Such income and expenses are reflected in the Bank of Israel’s financial statements.
 
 
Table 1: The Bank of Israel’s Budget for 2016
(financial data in NIS thousand)
2016
 
 
 
 
 
 
Expenditure budget
Permitted commitments for coming years
 
 
Personnel ceiling
 
 
 
Original 2015 budget
 
 
 
Actual expenditure 2014
 
Bank of Israel
1,100,937
782,796
797
894,309
859,059
 
Total excluding currency issue
========
867,045
= = = = =
435,227
= = = = =
797
= = =
817,797
= = = = =
794,211
= = = = =
01
Management and Central Services
218,079
83,552
331
219,256
193,349
02
Performance of Bank’s functions
195,125
34,383
443
192,605
180,419
03
Representative office abroad
3,894
861
2
3,323
2,466
04
Pensions
292,291
1,028
 
289,502
347,004
05
Investments
133,222
260,578
 
82,831
71,353
06
Income
(6,810)
 
 
(6,815)
(398)
07
Reserve
10,800
54,000
6
36,661
 
08
Currency issue
233,892
347,569
 
76,512
64,848
09
Operation of the Citizens of Israel Fund for natural gas profits
443
826
 
434
19
10
Credit data register
20,000
 
15
 
 
 

[1] The Supervisory Council is the entity charged with supervising the administrative activities of the Bank of Israel. The Supervisory Council consists mostly of members from among the public. The Supervisory Council members from among the public are Chairman Mr. Uri Galili; Mr. Ytzhak Edelman, CPA; Mrs. Maxine Fassberg, and Prof. Nina Zaltzman. The internal members of the Council are Governor of the Bank of Israel Dr. Karnit Flug and Deputy Governor of the Bank of Israel Dr. Nadine Baudot-Trajtenberg.
 
[2] The Citizens of Israel Fund Law, 5774-2014.