JERUSALEM (Reuters) - Israel needs a capital market with more financial instruments to help manage risk efficiently and boost competition for credit supply, Bank of Israel Governor Amir Yaron said on Tuesday.
“The extent of development and sophistication of the financial markets — such as how deep they are, how liquid they are when necessary, and what mix of instruments is available to the various participants, both firms and lenders, and customers and end consumers — is very important,” he told a central bank conference.
Yaron called for the development of a securitisation market in Israel to allow the expansion of non-bank credit as a less expensive source of financing.
“A lot of attention was paid to the lessons of the global crisis, and special emphasis was placed on the changes in regulation of the securitisation market in various countries, so that we can benefit from the advantages of securitisation while ensuring market transparency and a mechanism for the lenders to jointly bear the credit risk,” he said.
Yaron believes there should be an expansion of interest rate derivatives, which he said were necessary to “disperse the risks derived from the various instruments in the credit market, mainly medium- and long-term credit.”
“The absence of these basic instruments creates unwelcome distortions in the market, whether through credit pricing that is too high, or through the allocation of financing from the outset. This may lead to an equilibrium where the quantity of credit declines, difficulties emerge for the real sector, and the rate at which the economy can grow is impaired,” he said.
Reporting by Steven Scheer; Editing by Mark Potter