Supervision and Regulation

The financial system plays a central role in the economy, and its proper functioning and stability
are therefore essential for the development of the economy and for maximizing its potential growth.  The financial system is comprised of three parts:

• Financial institutions, with the banking system at the center, surrounded by institutional investors (pension funds, insurance companies, provident funds, and advanced training funds) and other financial entities (portfolio managers, underwriters, advisors, and so forth).
• The financial markets – money markets, foreign exchange markets, equity markets, bond markets, and derivative markets.
• The payment and settlement systems.

The Banking Supervision Department at the Bank of Israel in in charge of the stability of the banking system.  The Payment Systems Oversight Division at the Bank of Israel is in charge of the stability and efficiency of the payment systems.  The stability of the other financial institutions is entrusted to the Capital Market, Insurance and Savings Authority in the Ministry of Finance, and the proper functioning of the securities market is entrusted to the Israel Securities Authority.  Maintaining the stability of each of these parts of the financial system on its own is not sufficient for maintaining the stability of the entire financial system.  For that to happen, the entire system must be examined, in view of the complexity of the financial markets, the close linkage between them, the mutual relationships between the various types of financial institution and between them and the financial markets, the dynamics within the financial system, and the simultaneous implications of external shocks on the various parts of the system.