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"Growth does appear to be beginning to resume," Bank of Israel Governor Stanley Fischer told his fellow central bankers at the Federal Reserve symposium in Jackson Hole, Wyoming on Friday. He noted that the International Monetary Fund is forecasting economic stability in 2009 and growth in all regions of the world in 2010. "Despite the encouraging signs of recovery," he said, "it is too early to declare the economic crisis over." He said that many challenges remain, including the rehabilitation of the international banking system.

"Much remains to be done, not least in bringing banking systems back to health, and there are good - though not conclusive - reasons to fear a substandard recovery." Nonetheless, he said, "it is reasonable to declare that the worst of the crisis is behind us, and that the first signs of global growth have appeared earlier than was generally expected nine months ago."

Fischer emphasized that in contrast to most of the financial crises of the last decade, which began in the world's emerging markets, the present crisis erupted in the heart of the global financial system, the United States, and then spread to the rest of the world. For that reason, he said, the necessary reforms must begin the the center of the world's financial system.

Cat-and-mouse

"At this stage, we seem to be taking it for granted that we should go back to the structure of the financial system as it was on the eve of the crisis," Fischer said. "But we need to be thinking more broadly, including the possibility that some radical restructuring is needed."

Fischer said he hoped that the Knesset would pass the new Bank of Israel Law by the end of the year. He also revealed to his fellow central bank heads that he hopes to bring all of Israel's financial and economic regulators - the supervisors of the banks, of capital markets and of insurance and savings, as well as the Antitrust Authority and the Israel Securities Authority - under the aegis of the Bank of Israel.

Commenting on the tools available to central banks, Fischer said there was no reason to limit the scope of a country's central bank to setting interest rates, and that central banks should be given broader supervisory and regulatory powers. There is a clear need for comprehensive supervision that crosses the boundaries of the various financial sectors, he said; the issue is determing the optimal institutional arrangements for reaching this goal.

The central bank governor explained that the Bank of Israel is responsible for supervising the country's banks, and that this fact, which meant the central bank had constant access to data concerning the commercial banks, was instrumental in BoI's being able to deal effectively with the global crisis.

Fischer called on the world's financial regulators to stand firm against the constant pressures from financial institutions to find ways to reduce their capitalization. He said banks should be forced to put aside more capital, and that the central banks must impose tougher liquidity requirements on financial firms.