Inter-Ministerial Committee on Financial Stability (Israel)

The **Financial Stability Committee** is an Israeli statutory forum that brings together the central bank, the Ministry of Finance and financial regulators to identify and monitor risks to the financial system as a whole. Chaired by the Governor of the Bank of Israel, it supports coordination and prevention through information-sharing and recommendations; it does not replace the authorities that supervise individual institutions or manage a financial crisis. ^[1][2]

Purpose and remit

The committee addresses a coordination problem created by the structure of financial oversight. Israel’s financial system includes banks, institutional investors such as pension funds and insurers, securities markets, other financial firms, and payment and settlement systems. Responsibility for these components is divided among several authorities. The Bank of Israel describes the relevant supervisory assignments as including banking stability and payment-system oversight at the central bank, oversight of other financial institutions by the Capital Market, Insurance and Savings Authority, and securities-market oversight by the Israel Securities Authority. ^[3]

A problem in one part of the system can affect others through financial links, shared exposures, market activity or payment infrastructure. The Bank of Israel therefore states that examining each component in isolation is not sufficient to assess the stability of the financial system as a whole. ^[3] The committee provides an institutional setting in which the participating authorities can exchange information, consider developments across regulatory boundaries and discuss risks that may not be apparent from the perspective of a single supervisory mandate.

The committee’s work is preventive. In remarks on the legislation, then-Governor Karnit Flug described its role as regular tracking and monitoring of the financial system and providing recommendations to financial regulators and the government. She also emphasized that operative responsibilities remain with the relevant regulators and, in a financial crisis, with the government. ^[2] Accordingly, the committee is not a unified super-regulator and its existence does not transfer the day-to-day supervision of banks, insurers, investment firms, securities markets or payment systems to a new authority.

Establishment and legal basis

The Knesset passed the legislative amendment establishing the committee in November 2018. The Bank of Israel announced the change on 27 November 2018 and said that the committee would be headed by the Governor. ^[1] The measure amended the Bank of Israel Law, 5770–2010, which identifies the Financial Stability Committee as a statutory body. The central bank’s announcement characterized the committee’s creation as a response to the need for a system-wide perspective and closer coordination among regulators, given the number of participants in credit markets and the division of regulatory responsibilities. ^[1]

The proposal followed earlier calls for a cross-sectoral coordination mechanism. In a 2017 address to the Knesset Finance Committee, Flug said that the International Monetary Fund had recommended that Israel establish a financial stability committee several years earlier. She presented cooperation and information exchange among regulators, the Ministry of Finance and the central bank as necessary to identify and monitor systemic risks and address them before they threaten stability. ^[2] The committee’s formation was also discussed in the context of financial reforms and technological changes that could bring new entities into the financial system and create new connections and risks. ^[2]

Membership and chairing

The Bank of Israel’s announcement of the law’s passage listed the committee’s members as the Governor of the Bank of Israel, who serves as chair; the Director General of the Ministry of Finance, who serves as alternate chair; the Deputy Governor; the Finance Ministry’s Accountant General; the Supervisor of Banks; the Commissioner of Capital Markets, Insurance and Savings; the head of payment-system oversight at the Bank of Israel; and the chair of the Israel Securities Authority. The Head of the National Economic Council was named as an observer. ^[1]

This composition brings together senior officials whose institutions have responsibilities in different parts of the financial system. It combines central-bank leadership, banking and payment-system supervision, capital-markets and institutional-investor regulation, securities oversight, and the government’s finance and economic-policy functions. The committee’s cross-agency composition is designed to facilitate consideration of interconnections, rather than to consolidate each member’s institution or legal powers under the committee. ^[1][3]

The listed posts describe the committee’s statutory composition as reported when it was established. Officeholders can change over time; the institutional roles, rather than individual names, are the relevant basis for describing its structure.

Functions and working approach

The committee’s central functions are to support the identification, monitoring and discussion of risks to financial stability, and to provide recommendations to the relevant regulators and government. ^[2] Its cross-sectoral structure allows participants to consider how a shock or vulnerability might be transmitted between institutions, markets and infrastructure. In this sense, its subject is systemic risk: risk that could impair the functioning of the financial system more broadly, rather than only the condition of a single firm.

Coordination is particularly relevant where regulatory responsibilities meet. For example, financial institutions may hold assets issued or traded in markets overseen by another authority, and payment and settlement services connect firms across sectors. The Bank of Israel’s account of the financial system stresses the links among institutions, markets and infrastructure, as well as the possibility that external shocks may affect several components at once. ^[3] The committee provides a venue for participating authorities to compare assessments and discuss such cross-cutting exposures.

The committee’s preventive role should be distinguished from binding supervisory action. A recommendation or discussion at committee level does not itself substitute for the statutory decisions of the agency with jurisdiction over a particular institution or market. The distinction follows the description of the committee’s role by Flug: the committee supports stability through tracking, monitoring and recommendations, while operative responsibility remains with the relevant regulators and the government in a crisis. ^[2]

Relationship to financial stability analysis

The committee operates alongside, rather than in place of, the Bank of Israel’s analytical work on financial stability. The central bank publishes a Financial Stability Report twice a year. According to the Bank, these reports assess the financial system’s exposure to major risks, analyze those exposures and examine potential risk scenarios. The more comprehensive semiannual report covers exposure channels, potential risks and the stability of financial institutions; the other report focuses more on developments during the period under review. ^[4]

These publications are analytical products of the Bank of Israel, not committee decisions. They can nevertheless be read in the broader context of the system-wide monitoring that the committee was established to support. The distinction matters: a central-bank report presents the Bank’s assessment, while the committee’s institutional purpose is coordination among its members and recommendations to regulators or government. The committee does not publish the Bank’s reports on behalf of all participating bodies. ^[2][4]

Significance and limits

The committee’s institutional significance lies in formalizing communication among authorities with distinct mandates. When responsibilities are divided by sector, regular coordination can help authorities compare information and consider how risks might propagate across the whole system. The Bank of Israel linked the committee’s establishment to the need for a system-wide view of credit markets and financial regulation, while the 2017 remarks described early identification and monitoring of systemic risks as the rationale for such a body. ^[1][2]

Its limits are equally important. The committee is not a deposit insurer, a lender of last resort, a bank supervisor in its own right, or a government crisis-management body. Its role, as described in the sources, is preventive and advisory; supervision and operational responses remain with the authorities assigned those responsibilities. ^[2][3] The committee’s effectiveness therefore depends on coordination among its members and on the capacity and legal powers of the institutions that act on issues within their respective remits.

The committee also should not be confused with the Bank of Israel’s Monetary Committee. The latter is a separate statutory body responsible for monetary-policy decisions, whereas the Financial Stability Committee is a cross-agency forum focused on risks to the financial system and coordination among authorities. ^[1][2] Nor is it the same as any individual regulator: it brings institutions together without replacing them.

Related institutions and topics

The committee’s work is connected to the mandates of the Banking Supervision Department of the Bank of Israel, the Capital Market, Insurance and Savings Authority, and the Israel Securities Authority. It also sits within the wider framework of financial-system oversight that includes the Ministry of Finance (Israel) and the Bank of Israel. The committee is distinct from both the Bank’s Monetary Committee and its published Financial Stability Reports. ^[1][3][4]