Israel Backs Market for Securitized Assets

Move aims to make more capital available, boost competition to banks, lower credit costs.

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Bank of Israel Governor Karnit Flug holds up a newly designed 50 shekel banknote. September 10, 2014.
Bank of Israel Governor Karnit Flug holds up a newly designed 50 shekel banknote. September 10, 2014. Credit: Reuters

REUTERS - Israeli regulators have agreed to develop a securitization market as a means to increase the sources of funding and capital in the economy and boost competition in the financial system.

A final report issued on Thursday by the Bank of Israel, the Finance and Justice ministries, the tax authority and Israel Securities Authority made a host of recommendations including making it possible to securitize a variety of loans and assets.

The process involves the creation of tradeable financial instruments backed by packages of assets, such as mortgages, and sold to investors.

The report noted that such a market would contribute to the continued development of the non-bank credit market, with institutional investors and financial firms being able to securitize assets and raise money independently on the capital market rather than use the banking system.

"This is a significant step that will lead to the sophistication of the capital market in Israel and to increased competition," Finance Minister Moshe Kahlon said.

He noted that the report's conclusions take into account the lessons from the global financial crisis so "the market will therefore be developed cautiously and responsibly".

Bank of Israel Governor Karnit Flug said that a securitization market would increase funding sources in the economy and lead to lower credit costs for businesses - particularly small companies - while continuing to develop the credit market.

Regulators are in the process of finding ways to increase competition in the highly concentrated banking and financial systems to reduce the cost of credit to small businesses and consumers.

On Wednesday the central bank said it was looking to set up a data bank and hire private credit bureaus to make it easier and cheaper for consumers to borrow from sources other than their own banks.

The Bank of Israel and Finance Ministry are also working together on other banking reforms, including a plan that would force banks to sell their credit card businesses.

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