Israeli banks will not collapse, Fischer vows

Fischer also predicted Israel's economy would recover around the same time America's economy starts showing recovery signs.

Stn Fischer good 88 248 (photo credit: Ariel Jerozolimski)
Stn Fischer good 88 248
(photo credit: Ariel Jerozolimski)
Israel's banking system is not in danger of collapse, Bank of Israel Governor Stanley Fischer said Tuesday, reassuring Knesset members with an expression of confidence in the country's economy. "We believe the Israeli banking system is strong," Fischer said in the Knesset Finance Committee. "I am certain that no bank will collapse and I am even more certain that no depositor will lose his money." He also predicted that Israel's economy would recover from the current crisis around the same time as America's economy starts showing recovery signs. Fischer tempered his optimism, remaining cautious in his address. "A governor should never say [a collapse] can never happen, but we will make sure the banks stay strong until the end of the current crisis and beyond," he said. "The banks can take the losses," he said, "but they still need to recruit capital." Addressing concerns that banks were not lending sufficient amounts of money at the recently lowered interest rates, Fischer said the Bank of Israel "speaks with the banks about reducing the interest rates in accordance with the reduction in the central bank's interest rate. The question is whether they reduced [their rates] enough. In any case, the banks must maintain interest gaps for the sake of their financial stability as long as they face tough times." Fischer stressed that maintaining the stability of banks was the ultimate goal, especially after the losses reported in the last quarter of 2008. He also noted that banks had begun setting aside large sums of money as reserves for covering future debts. Deflecting concerns of a collapse of crucial businesses, Fischer said the economy was capable of absorbing the fall of a tycoon, but he was unsure how the economy would handle the collapse of several crucial figures at once. The Israel Securities Authority (ISA), Fischer added, had approved various means of assistance for wealthy business owners to ensure the stability of their businesses. However, Fischer said, it will not be possible to give companies the type of credit they received two years ago. Doing so would have a negative effect on the market, and the financial system would end up facing the same shortage of credit it experienced in 2002-2003, he said. Israel managed to overcome that crisis thanks to generous American loan guarantees. "But the 'rich uncle' is not so rich this year, so Israel shouldn't count on the Americans' help but should prepare to handle [the crisis] by itself," Fischer said. He also warned that increasing the public debt would have a negative effect on the budget. Fischer then warned of blindly accepting the positive forecasts of his colleague, US Federal Reserve Chairman Ben Bernanke. "This is great, but we need to remember that the end of the crisis is usually the time when the market and the public is at the worst situation," Fischer said. "We are capable of softening the implications of this crisis and we can take actions to help those who need help. But... we don't have the ability to transfer unlimited sums of money to the market like the western countries have." Lastly, Fischer responded to suggestions that the Bank of Israel's economic plan presented last week was "too modest." He suggested that the government increase its expenditure to slow down some of the crisis's consequences, but in a supervised way that would not exceed much more than 6 percent of gross domestic product. "The plan could be more grandiose," Fischer said, "but who would pay the price?"