I am pleased to participate in the
first discussion in the Knesset Finance Committee on the issue of establishing
a financial stability committee.


About 5 years ago, the
International Monetary Fund recommended that Israel establish a financial
stability committee.  It took us some
time, but I am happy that the government, the financial regulators and the Bank
of Israel have all reached agreements regarding the composition, aims and
authorities of the committee—those that are before you, the members of the
Knesset, in the text of this bill.


Both in Israel and around the
world, the main motivation for establishing a financial stability committee was
the understanding that cooperation, the transfer of information and
coordination between the various financial regulators, the Ministry of Finance
and the central bank, are required in order to identify and monitor systemic
risks and deal with them in a timely manner so that they don’t become risks to
the financial stability of the economy.


We must remember that impaired
financial stability has long-term implications for employment, growth, and
general well-being.  The world
experienced this during the Global Financial Crisis of 2008, and one of the
main lessons learned was the necessity of institutionalizing cooperation and
coordination between all the financial authorities in the country within a
central body.  Accordingly, many of the
advanced economies have established financial stability committees.


Such cooperation and coordination
is also important due to the changes expected in the financial system in
Israel, both the reforms to increase competition and the rapid technological
changes that are enabling the entry of new entities into the financial
system.  These changes, alongside the
advantages they bring with them, are naturally expected to increase the
existing risks and to create new ones, both due to the increase in activity and
the changes in its components, and due to the close interfaces of the new
entities with the financial system.


Maintaining a stable financial
system is the responsibility of the government, the Bank of Israel, and the
other regulators.  The financial
stability committee will make it possible to fulfill this responsibility.  However, we must remember that the financial
stability committee’s responsibility is preventive, and that the operative
responsibility essentially remains that of the financial regulators or, in the
case of a financial crisis, the government.  The committee will enable the regular tracking
and monitoring of the financial system and provide recommendations to the
financial regulators and to the government that will support the stability and
proper functioning of the financial system. 
The Bank of Israel will lead and manage the committee’s work, and for
that purpose, a division was established four years ago at the Bank of Israel
to deal with the area of financial stability. 
That division will do most of the staff work of the committee and will support
its activity.


The discussion of financial
stability is often considered something that serves the financial entities, but
this is not so.  Maintaining financial
stability first and foremost serves the customers of the financial entities,
the economy, and the public as a whole. 
Maintaining financial stability means that when we deposit our salaries
in the bank, we can sleep quietly and be certain that we will be able to
withdraw it whenever we want.  It means
that when we save for retirement, those savings will be available to us.  And it means that when a business or factory
owner receives a commitment, it will be honored.


In conclusion, this is the first
significant amendment to the Bank of Israel Law in its new format since the law
was legislated through this committee seven years ago, under the committee
chairman of the time, who is also the committee chairman now.  I am certain that the discussions will be
matter-of-fact and will lead to legislation that, in the end, will serve the
public in the optimal manner.  Permit me
to offer you, as we always do, the Bank of Israel’s professional assistance in
this important legislative process.​