Supervisor of Banks David Zaken
Photo: Sasson Tiram
'Banks will withstand tycoon downfall'
In 2010, Bank of Israel analyzed banks' endurance in extreme scenario that now seems more real than ever: Market slides and crash of economy's two largest conglomerates. Results were encouraging. Concerns: Ongoing crisis will lead to credit crunch, harm business sector
Global and local market volatility and steep slides in tycoon shares naturally set off alarm bells in the corridors of Israel's
economic leadership. The Knesset's Economic Affairs Committee will discuss Sunday the risk and effect of a tycoon downfall in the banking system and economy.
Committee Chairman Knesset Member Carmel Shama-Hacohen claims that the centricity of the Israel economy may cause a domino effect if tycoons fall.
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As social protest grows, country's richest people became focus of sort of media attention normally given to politics, homeland security
However, Bank of Israel supervisors asserted vis-à-vis head of banks that credit portfolios are stable at this point and agreed that credit managers should continue to follow the portfolios, especially construction and real estate credit portfolios.
Supervisor of Banks David Zaken asserts that his statement from last week that "there is no threat to the banking system" holds true.
The confidence in the stability of the banking system also stems from a Bank of Israel analysis from 2010 of a scenario in which a financial market crisis impacts the economy's real activity and harms the banks' financial results.
The scenario hypothesizes the events that are believed to follow the downfall of two of the economy's major tycoons and the solvency problems of major loaners which issued bonds and obtained leveraged credit form the banks with which to acquire controlling interest.
An alternative scenario that was analyzed postulates a rise of the problematic credit rate in the banks' aggregated credit portfolio form 5.3% to 10% – similarly to the 2002 crisis.
The outcomes of the scenario analysis show that the banking system can maintain stability and that the banking system's capital adequacy – a stability index – remains above the required threshold in the event of extreme scenarios.
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