Box from the Financial Stability Report for the first half of 2020: Sensitivity tests for the banks in Israel
To the full message, with the graphs
· The Israeli banking system’s level of resilience prior to the crisis was much higher than that observed in the past (and in particular relative to its resilience prior to the Global Financial Crisis of 2008). In addition, the government and the Bank of Israel, like other governments and central banks worldwide, took extraordinary measures to support the financial and real systems in order to deal with the effects of the pandemic and to reinforce the banks’ resilience.
· The sensitivity tests that we carried out on the basis of various credit loss scenarios provide a standard for measuring the stability of the banking system in the short and intermediate terms, and make it possible to identify points of sensitivity of the individual bank and of the banking system as a whole. The results show that that in any stress scenario, even one that is particularly severe, the banking system will remain stable.
· Finally, the group of scenarios that we examined revealed the importance of households and small and midsize businesses in determining the stability of the banks. A shock to these sectors is liable to reduce capital adequacy by between 0.3 and 1.5 percentage points. Given the nature of the current crisis, these sectors are particularly exposed to economic and financial distress, and are therefore the focus of the Bank of Israel’s attention.