The Bank of Israel Governor and the Supervisor of Banks held a special discussion with the heads of the banks regarding the Corona crisis
Bank of Israel Governor Prof. Amir Yaron said, “The banking system is strong, and it is essential that the banks know how to find a balance between responsible credit policy and the financing needs of the economy—particularly in relation to the business sector, with an emphasis on small and midsized businesses.”
Supervisor of Banks Dr. Hedva Ber said, “The banking system in Israel is prepared in terms of capital and liquidity for possible scenarios of various levels of severity, and can support continued business activity in the economy. The banks have surplus capital of about NIS 14 billion beyond the regulatory capital ratios, and can therefore continue providing credit to good companies that encounter cash-flow difficulties due to the situation.”
Bank of Israel Governor Prof. Amir Yaron met with the CEOs of the seven banks at his office today at a special meeting in order to discuss the state of the economy and the banking system’s readiness to provide proper banking services in view of the corona crisis. Alongside the Governor, participants in the meeting included Deputy Governor Andrew Abir, and Supervisor of Banks Dr. Hedva Ber. The meeting was intended to examine how the banking system can continue to help deal with the economic ramifications of the crisis and support business activity in the economy, and was part of the Bank of Israel’s increased monitoring and analysis of recent economic developments since the outbreak of the coronavirus.
At the meeting, the Governor clarified that the Bank of Israel has a variety of tools to support economic and financial activity in the economy. The Governor added that monetary policy remains accommodative, in order to support economic activity. Among other things, the Governor appointed a special team that will integrate the Bank of Israel’s activity surrounding the crisis and contact with other authorities. The team will be led by Deputy Governor Andrew Abir, and will closely monitor the spread of the virus both in Israel and abroad, developments in the global economy and financial system, and their implications for the banking system in Israel, the domestic financial markets, and the economy as a whole.
During the meeting, the Governor outlined the recent developments in the global and domestic financial markets, and their possible ramifications for the Israeli economy. The Governor emphasized the strong macroeconomic state of the economy and the robustness of the banking system and how important that is when there is an incident with significant economic implications.
It is noted that the Bank of Israel Research Department is constantly assessing the effects on the Israeli economy in various scenarios. In the Bank of Israel’s assessment, in accordance with developments thus far and assuming that the event ends by the end of the second quarter, the crisis is expected to lead to a loss of 0.7 percent of GDP in growth this year. If the spread of the virus is halted, GDP is expected to return to the pre-crisis path, which will be reflected in a temporary acceleration of growth. The pace of the recovery will be influenced by the policy measures taken during the crisis to mitigate its damage.
However, this is a rolling event, and there is tremendous uncertainty regarding the continued spread of the virus and what it means for economic activity in Israel and abroad. The uncertainty is due to three factors:
1. The duration of the event;
2. The intensity of the spread of the virus in other countries, as well as the extent of the spread of the virus in Israel;
3. The intensity of preventive measures against the spread of the virus takn in various countries and in Israel, and the economic effects of these measures.
Following this assessment, the Governor explained that, “At this time, the Bank of Israel’s role is to assist in attaining the proper balance in the financial system. It is essential that the banks know how to find the balance between their credit policy and the financing needs of the economy—particularly the business sector, with an emphasis on small and medium-sized businesses, which are most significant for the economy’s ability to continue growing, and are based mainly on bank credit.”
The Governor clarified to the CEOs of the banks that “If each bank makes its credit policy significantly more rigid, economic growth will slow, which will retroactively justify the tighter credit policy adopted by the banks, becoming a self-fulfilling prophecy. However, if each bank and the other banks in the system ease their credit policy even slightly, it will help in overcoming the cash flow difficulties that may weigh down on healthy economic activity, and the economy will weather the intermediate period and grow more rapidly, which will retroactively justify the more accommodative policy adopted by the banks.”
The Governor added that, “The Ministry of Finance, in conjunction with the Bank of Israel, will assist, partly through the designated fund for small and midsized businesses that was launched yesterday. These solutions will help various merchants deal with the situation in the intermediate period, based on the banks’ business considerations.”
The Supervisor of Banks said that, “the banks have surplus capital of about NIS 14 billion, beyond the regulatory capital ratios, and can therefore continue to provide credit to good companies that encounter cash flow difficulties due to the situation, since right now, this incident is a fundamentally a cash flow event.” The Supervisor of Banks provided a report at the meeting regarding the state of the banking system, the measures taken since the beginning of the crisis to ensure business continuity and service to customers, and the exposure to scenarios that may develop. At the discussion, it was decided to establish a team of all banks, led by the Banking Supervision Department, to examine further steps that can be implemented to make it easier for the banks’ customers if things become more serious. Dr. Ber said that the Banking Supervision Department has increased and expanded supervision and on-going monitoring of developments at each bank and in the banking system as a whole. The Supervisor of Banks emphasized that the banking system in Israel is prepared in terms of capital and liquidity for possible scenarios of various levels of severity.
The CEOs of the banks reviewed the state of the banking system, the measures taken since the beginning of the crisis to ensure business continuity and service to customers, and the exposure to various possible scenarios. They acceded to the call by the Governor and the Supervisor of Banks, and said that they will contribute to helping companies and customers of the banking system.
The presentations at today’s meeting, the on-going conversation between the Bank of Israel and the banks, and the analysis of data that the banks sent to the Banking Supervision Department all show that the banking system’s current exposure to the crisis is small, and that the banks are also prepared for a worsening of the situation, should the event continue and expand at the global and domestic levels. Furthermore, it appears that the banking system is taking appropriate and responsible steps to manage the various banking services on an on-going basis. The Governor and the Supervisor of Banks took positive note of the actions taken, and expressed trust in the Israeli banking system, and particularly in its risk management.