Erlend W. Nier, Jacek Osiński, Luis I. Jácome, and Pamela Madrid, 2011, “Institutional Models for Macroprudential Policy”, IMF Staff Discussion, SDN/11/18, November (Washington: International Monetary Fund).
International Monetary Fund, 2012, “Israel: Financial System Stability Assessment; IMF Country Report 12/69 (Washington: International Monetary Fund).
Stijn Claessens, Michael Keen, and Ceyla Pazarbasioglu, 2010, “Financial Sector Taxation: the IMF Report to the G20 and Background Material,” September (Washington: International Monetary Fund).
Bank of Israel Law, 2010.
The Securities Law, 1968.
Banking Ordinance, 1941.
This note was prepared by Anna Ilyina (MCM), Kotaro Ishi (EUR), Atilla Arda and Virginia Rutledge (both LEG) and has benefitted from comments by Jacek Osinski (MCM).
See “Israel: Financial System Stability Assessment; IMF Country Report 12/69; March 12, 2012” for a discussion of Israel’s experience and policies during the crisis.
Israel does not have a single document entitled ‘Constitution.’ Instead, Israel’s constitutional arrangements are laid down in so-called Basic Laws, which in some cases may require a supermajority to amend or overturn.
The Monetary Committee has broad authority to “determine policies” and “deciding actions under [the BOI Law]” for achieving the BOFs objectives.”
A financial stability objective could be absolute (e.g., “to maintain” or “to ensure”) or relative (e.g., “to contribute to” or “to support”).
Macroprudential functions are described in paragraph 8.
In addition to objectives under the heading “Objectives of the Bank,” Section 4 on the “Function of the Bank” includes (intermediary) objectives for specific functions: the BOI’s role in the foreign exchange market is “supporting the orderly activity” thereof; and oversight over payment and clearing systems is to “ensure their efficiency and stability.” Sections 3 and 4 read in conjunction seem to suggest an indirect relationship between certain functions and the BOI’s financial stability objective.
The BOI’s financial stability objective is appropriately limited to ‘supporting’ and not ‘ensuring’ financial stability because its jurisdiction, and that of its governor, the Supervisor of Banks, and the Monetary Committee, do not cover all financial institutions, markets, and infrastructure.
The Monetary Committee has access to this information available to the Governor. (Section 30, BOI Law) The Insurance Law allows the Insurance Commissioner to share information with the Securities Authority and the Supervisor of Banks. (Section 50B) Section 13 of the Securities Law allows the ISA to share information at the discretion of the Chairman.
The BOI, through the Supervisor of Banks, has direct access to information from banks (Section 5(a), BOI Law).
It should be noted, though, that from a legal perspective in some instances certain powers can serve financial stability purposes only in an indirect fashion. For example, although monetary policy in general could serve financial stability purposes, the Monetary Committee’s decision on the interest rate “is set for the purposes of monetary policy.” (Section 15.3, BOI Law). Consequently, it would seem that the interest rate policy tool can only be used for financial stability purposes after deciding that monetary policy in general will serve that purpose.
Section 36(6) of the BOI Law allows the BOI to “take any other action the Bank deems necessary [to attain its objectives and discharge its functions] provided it obtains the approval of the [Monetary] Committee.”
In case of securities regulation, the IOSCO core principles adopted in 2008 specifically require that securities regulators should contribute to a process of monitoring, mitigating and managing systemic risk, appropriate to its mandate.
See IMF Staff Discussion Note on “Institutional Models for Macroprudential Policy”, SDN/11/18 for a discussion of various considerations that affect the choice of the decision making mechanism of a financial stability committee.
For instance, crisis management committee has been established in Turkey and is under consideration in a number of other countries.
See, “Key Attributes of Effective Resolution Regimes for Financial Institutions”, Financial Stability Board, October 2011.
Some jurisdictions bolster the enforcement powers by requiring various corrective measures that are automatically triggered at declining levels of capital adequacy, a framework referred to as prompt corrective action (PCA). The endpoint of the PCA is typically a requirement to initiate formal bank resolution proceedings when the capital adequacy levels fall below a certain critical point.
A number of countries have some form of pre-insolvency bank resolution in going concern. There are significant variations in its design and even in the terminology used to describe it. In this paper, we use the term “official administration.” Other terms for this type of bank resolution authority are “temporary administration,” “interim administration,” “statutory management,” or “conservatorship.”