Fischer calls for uniform financial supervision

Fischer said it was of utmost importance for the central bank to be able to make fast real-time decisions, especially in a situation of crisis.

stanley fischer 4 88 224 (photo credit: Courtesy)
stanley fischer 4 88 224
(photo credit: Courtesy)
The government should unify the supervision over banks and insurance companies and place it under the authority of the Bank of Israel, the central bank said Wednesday. "The important lesson we have learned from this current financial crisis is that in the future it is essential for the central bank to be closely involved in the supervision of financial institutions," Bank of Israel Governor Stanley Fischer said Wednesday at the annual Capital Markets conference organized by Deloitte Brightman and TheMarker in Tel Aviv. "We need to unify the supervision on banks with the supervision on insurance, provident and pension funds under one roof at the Bank of Israel, while leaving the Israel Securities Authority as a separate supervisory body." Fischer said it was of utmost importance for the central bank to be able to make fast real-time decisions, especially in a situation of crisis, since the central bank was responsible for monitoring financial stability and was in the unique position of increasing financial liquidity in the market as needed. "There is no reason for a supervisory authority to be part of a government office," he said. "The harmonization is critical, in particular in light of the risks faced by financial institutions because of the development of new financial instruments. The repercussions of these new risks are mirrored in the current crisis." Fischer said insurance companies today were involved in financial and banking activities, following the Bachar Reforms, similar to the banks' activities, and therefore there was no difference between the risks faced by banks and the risks faced by insurance companies. "In analyzing the global financial crisis, nearly all financial bodies around the world have come to the conclusion that there is a need to significantly expand and strengthen the involvement of central banks in the supervision of financial institutions," he said. Fischer said the US Treasury Department, in response to the financial crisis, had suggested that the US Federal Reserve be given more responsibilities regarding financial stability, including authority over the supervision of important financial institutions. "Should the supervision of financial institutions be unified and put under the responsibility of the Bank of Israel," he said, "we would initially separate the supervision regarding the risk management of financial institutions, so-called prudential supervision, from supervision of conduct of business. "At a later stage, after a couple of years, we will examine the question of separating the supervision of conduct of business from the central bank to establish a new authority." Last May, Supervisor of Banks Roni Hizkiyahu called for the consolidation of supervisory bodies to harmonize oversight across the banking and, in particular, the non-banking, or insurance, sectors following the Bachar Reforms, which have changed the financial balance in the markets and created new risks.