The Functions of the Bank of Israel: Acting as banker of the Government

In this capacity, the Bank of Israel operates in three areas:   

The State Loans Administration administers the government's domestic loans, both non-compulsory (negotiable or non-negotiable) and compulsory, with the exception of loans issued under the State Loans Law, 5739-1979, responsibility for which was transferred to the Ministry of Finance on June 15, 2006. The Administration is also responsible for the redemption in Israel of foreign loans (State of Israel Bonds).   

The Administration records receipts from the sales of bonds and payments to bond and securities holders, maintains the register of holders of non-negotiable State loans and securities traded on the Stock Exchange, and in this regard acts as the coordinating bank for short-term government securities (makam).   

The Administration prepares and publishes directives relating to repayment of loans and determines and calculates the amounts of repayment of principal and interest.   

As manager of the compulsory-loan databases, the Administration is able to perform lawful transfers of loan certificates and make payments on account of the redemption of such certificates. It also advises the public about redemption options and provides up-to-date and detailed information in all matters relating to these loans.   

By consulting the Bank's Web site, individuals may determine whether or not they are entitled to redeem compulsory-loan certificates in their possession.   

Banker of the government:  Section 48(a) states that "The Bank shall be the sole banker of the Government in its Banking Activity in Israeli Currency." Accordingly, the government manages all its domestic-currency accounts and some of its foreign-currency accounts with the Bank.   

The Government may, with the agreement of the Bank, as stated in Section 48(b) of the Law, "obtain certain services from Banking Corporations or Financial Entities, provided this be done only in order to manage the Government's debt and fiscal activity." The government manages domestic- and foreign-currency accounts for its budgetary and extra-budgetary activity in Israel and abroad, for financial transactions vis-a-vis the Bank of Israel, and for the financing of activity unrelated to the budget, with the Bank of Israel.   

The Comptroller of the Bank of Israel manages the government's domestic- and foreign-currency accounts with the Bank and provides the government with normal banking services: making and receiving payments for and on behalf of government ministries and auxiliary units, calculating interest on the government's interest-bearing accounts, preparing daily account records, confirming balances, etc.   

Banker of the banks: The banks deposit money with the Bank of Israel, in both domestic and foreign currency, in various types of deposits; some under the reserve requirements and some deposits of surplus cash made at the banks' own initiative in interest-bearing fixed-term deposits. The current accounts that the banks maintain with the Bank of Israel are used for the management of liquidity and for final settlement (the paper-based clearinghouse known as the Bank Clearing House or simply BCH; the banks' automated clearing house --ACH or Masav, its Hebrew acronym; and the Tel Aviv Stock Exchange, abbreviated as TASE). These accounts are managed by the Comptroller of the Bank of Israel.   

In addition, the Bank of Israel provides banks with monetary loans by auction, discount-window ("overnight") loans, and settlement services for USD-NIS transactions that they conclude with each other using the "payment versus payment" method.   

The banks' domestic currency clearinghouse, which settles checks and digital transactions, is supervised by the Clearing House Committee, appointed by the Governor of the Bank of Israel and composed of representatives of the Bank of Israel and the commercial banks. At the checks clearinghouse, managed at the Bank of Israel, representatives of the banks exchange checks and payment instructions once a day. This clearinghouse, situated near the banks' headquarters in Tel Aviv, processes hundreds of settlement actions every day, mostly in checks, at a financial value that adds up to hundreds of billions of shekels each year.