Acting as the Banker of the Government
The Banker of the Government
Pursuant to section 48 (a) of the Bank of Israel Law, 5770-2010 (hereinafter - the Bank of Israel Law): "The Bank shall be the sole banker of the Government for its banking activity in Israeli currency." Accordingly, the Government manages all of its accounts in local currency and even some of its accounts in foreign currency at the Bank of Israel. the Bank of Israel's Banking and FinancialServices Unit is the entity that provides the Government Ministries with the following banking services: execution of money transfers in all payment methods currently available in the economy and in a variety of currencies in Israel and around the world; interest calculations for its interest-bearing accounts; daily account statements, balance confirmations; and more.
Banker of the government:
Section 48(a) states that "The Bank shall be the sole banker of the Government in its Banking Activity in Israeli Currency." Accordingly, the government manages all its domestic-currency accounts and some of its foreign-currency accounts with the Bank.
The Government may, with the agreement of the Bank, as stated in Section 48(b) of the Law, "obtain certain services from Banking Corporations or Financial Entities, provided this be done only in order to manage the Government's debt and fiscal activity." The government manages domestic- and foreign-currency accounts for its budgetary and extra-budgetary activity in Israel and abroad, for financial transactions vis-a-vis the Bank of Israel, and for the financing of activity unrelated to the budget, with the Bank of Israel.
The Comptroller of the Bank of Israel manages the government's domestic- and foreign-currency accounts with the Bank and provides the government with normal banking services: making and receiving payments for and on behalf of government ministries and auxiliary units, calculating interest on the government's interest-bearing accounts, preparing daily account records, confirming balances, etc.
Banker of the banks:
The banks deposit money with the Bank of Israel, in both domestic and foreign currency, in various types of deposits; some under the reserve requirements and some deposits of surplus cash made at the banks' own initiative in interest-bearing fixed-term deposits. The current accounts that the banks maintain with the Bank of Israel are used for the management of liquidity and for final settlement (the paper-based clearinghouse known as the Bank Clearing House or simply BCH; the banks' automated clearing house --ACH or Masav, its Hebrew acronym; and the Tel Aviv Stock Exchange, abbreviated as TASE). These accounts are managed by the Comptroller of the Bank of Israel.
In addition, the Bank of Israel provides banks with monetary loans by auction, discount-window ("overnight") loans, and settlement services for USD-NIS transactions that they conclude with each other using the "payment versus payment" method.
The banks' domestic currency clearinghouse, which settles checks and digital transactions, is supervised by the Clearing House Committee, appointed by the Governor of the Bank of Israel and composed of representatives of the Bank of Israel and the commercial banks. At the checks clearinghouse, managed at the Bank of Israel, representatives of the banks exchange checks and payment instructions once a day. This clearinghouse, situated near the banks' headquarters in Tel Aviv, processes hundreds of settlement actions every day, mostly in checks, at a financial value that adds up to hundreds of billions of shekels each year.
Banking of Financial Entities
Section 50 of the Bank of Israel Law provides as follows:
- The Bank may keep accounts for banking corporations and other financial entities, and, at the decision of the Governor, with the approval of the Committee, for central banks, monetary authorities and foreign banks, and all subject to terms and conditions to be determined by the Governor, including the collection of management fees and commissions or other fees and commissions;
- An account at the Bank may be managed in Israeli currency or in foreign currency, as will be determined by the Governor.
Accordingly, the banking corporations manage deposits of various types in shekels and in foreign currency at the Bank of Israel. The current accounts of banking corporations at the Bank of Israel are used for both liquidity management and settlements purposes (the "ZAHAV" (RTGS) system Clearing House; the Banks' Paper-Based (Cheques) Clearing House; the Banks' Automated Clearing House ("MASAV") and the Tel Aviv Stock Exchange Clearing House).
In addition, the Bank of Israel may provide banks with short-term monetary loans and deposits. For more information on the monetary tools of the Market Activity Division at the Bank of Israel, please click here