Israel: central bank raises warning level of threat to financial system

The Bank of Israel raised it warning level of the threat to Israel’s financial system on Wednesday, citing uncertainty related to the government’s judicial overhaul. According to the Financial Post, the Israeli government’s efforts to advance its controversial judicial overhaul actually poses a threat to the country’s financial system and economy.

In its Financial Stability Report for the first half of 2023, the central bank presented the challenges to the country’s financial system and raised its assessment of the level of risk to Israel’s macroeconomic environment to “medium high” from “medium low”.

The Times of Israel said that the bank’s report cited concerns of legal and institutional changes leading to a slowdown in the tech sector and a weakening of the shekel exchange rate. The report warned about “the risks involved in permanent structural changes that are perceived as weakening the independence of the institutions.”

It added that the judicial reform plans have “caused a significant increase in uncertainty in the business sector and among key players in the financial markets in Israel and around the world.”

The Bank of Israel concluded that the local financial system “remains stable” thanks to the resilience of the banking system and insurance companies. However, it warned that if the uncertainty around the economic consequences of the legislative changes increases, this may “challenge the financial system in the medium term.”

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