The Bank of Israel said Sunday there were no signs the US subprime mortgage crisis has had a snowball affect on the local market, but that doesn't mean local banks will escape free and clear. "Israeli banks are not expected to be affected in a dramatic way by the US subprime mortgage crisis like other banks around the world," Leader Capital Markets analyst Alon Glazer said in a research note. "However, Bank Hapoalim and First International Bank could be more exposed to the crisis since their financial asset portfolios are more aggressive and they invested into debt obligations in the form of US mortgage-backed securities." Indeed, Glazer said the damage could be significant for them as Hapoalim has investments of $2.5 billion in mortgage-backed securities while First International has $1b. "Although the loans enjoy a high rating and low risk level, we all know that when it rains everyone gets wet so these mortgages are also becoming riskier over the past weeks," said Glazer, who noted that the diminution in value was poised to have an impact on the results of the banks. Furthermore, he said, Israeli banks with branches operating abroad such as Israel Discount Bank and Bank Leumi are lightly exposed to mortgage-backed securities loans but at much lower volumes in comparison with Hapoalim and First International so if there is a negative impact, it will be marginal at best. Although the Israeli banking sector is barely exposed to the US mortgage market in a direct manner, the country's banks all will be affected by the downward slope on the local and international bond markets. "Falling bond markets in Israel and abroad are likely to have an impact on the banks' results already in the third quarter," said Glazer. Similarly, Yuval Ben-Zeev, head of the Research Department at Clal Finance Batucha, said the direct impact of the US mortgage market crisis on the local banking sector was expected to be marginal, but that local banks, nevertheless, would experience losses from their foreign accounts as a result of falling bond markets. "The real worry is not the impact of the US mortgage crisis on the local market, which is expected to be modest, but the problem of liquidity, which could be spreading like a fire around global markets," said Ben-Zeev. "To increase liquidity, high volumes of shares will be sold off on all markets including the Israeli market and as such we could see much money flowing out of Israel." A Bank of Israel spokesperson told The Jerusalem Post Sunday, "At this moment, there is no crisis in the local mortgage market and there is no problem of liquidity and thus there is no reason for the Bank of Israel to act."