Knesset Passes New Bank of Israel Law

The Knesset yesterday passed a new law governing the Bank of Israel. The legislation includes provisions establishing a six-member monetary committee at the central bank, to be chaired by the bank's governor, which will set policy on other goals of the bank in addition to determining monetary policy. The legislation passed the Knesset 28 to 1 with Hadash MK Dov Khenin casting the dissenting vote.

Other monetary committee members will include the governor's deputy, a bank employee to be appointed by the governor and three public representatives. The committee will make summaries of its proceedings and decisions public. The central bank will also have an administrative committee to review its annual work plan and approve its annual administrative budget. The bank's budget will be submitted to the Knesset Finance Committee, but will not be subject to committee approval.

The Finance Ministry's wages director will continue to oversee the salaries paid to the central bank's employees, with any differences of opinion to be resolved by the prime minister. Another provision in the legislation states that under special circumstances of concern about the stability of the financial system or its ongoing functioning, the central bank is authorized to extend credit to non-bank entities.

The central bank's governor, Stanley Fischer, was present in the Knesset for the passage of the bill. Finance Minister Yuval Steinitz noted that it took 10 years to pass the legislation after an official commission recommended the principles by which the bank should be governed. Steinitz added that on his first day as finance minister, Bank of Israel Governor Stanley Fischer said his only request was that such legislation be passed.

The finance minister said he promised that a law would be passed during his tenure. "There were a lot of disagreements," Steinitz acknowledged, adding that "there is structural tension between the Bank of Israel and the treasury, and after a great many deliberations, the cabinet approved the resolution almost unanimously." He noted that "[Knesset Finance Committee] chairman Moshe Gafni [of United Torah Judaism] did excellent work with the members of the committee.'' Steinitz called the final result "a good law that defines the independence of the Bank of Israel and the division of responsibility between the bank and the government."

Gafni noted that the legislation garnered wall-to-wall support in his committee and added: "I am certain and very much hope that after the passage of the law, Governor Fischer will remain here for another term."

After the passage of the bill, MK Shelly Yachimovich (Labor) said, "Fischer was with us during difficult, crisis-filled years from an economic standpoint. He demonstrated leadership and courage. His economic perspective is not the same as my economic perspective, but when I identify responsibility and professionalism, I can appreciate it."