Executive Summary
The Joint Team to Promote Securitization in Israel presents its Intermediate Report to the Minister of Finance and to the Governor of the Bank of Israel. The Team recommends a series of major legislative amendments which will lead to removing obstacles to developing the securitization market in Israel.

  • The report contains recommendations to advance the securitization market, in order to improve the efficiency and competitiveness in capital markets in Israel while maintaining their stability. The team’s recommendations are thus in line with regulatory policy to develop the capital market through increasing the supply of financial instruments that can be traded on the stock exchange.
  • The proposed reform will contribute to increasing the variety of funding sources for businesses in general, and small and midsized businesses in particular.
  • In formulating the recommendations, considerable attention was paid to learning lessons from the global crisis which broke out in 2008, and special emphasis was placed on regulatory changes in securitization markets worldwide. The recommendations detailed in the report provide a suitable solution to problems resulting from securitization transactions which were revealed after the financial crisis in 2008. 
The Joint Team to Promote Securitization in Israel today presented its Interim Report to Finance Minister Yair Lapid and Bank of Israel Governor Dr. Karnit Flug.  The Team included representatives of the Israel Securities Authority, the Ministry of Justice, the Capital Market, Insurance and Savings Department at the Ministry of Finance, and the Israel Tax Authority, as well as the Bank of Israel, which consolidated the team’s work. The team concentrated on identifying the obstacles to the development of the securitization market in Israel—among other things, regulation and accounting issues, and made various recommendations in those areas, in order to remove those obstacles and to move the market forward.
Within the framework of securitization, banks and other originators of securitization transactions will be able to sell to a Special Purpose Corporation (SPC) the rights to a portfolio of loans or to a group of cash-yielding financial assets. The SPC will fund the purchase by issuing bonds to institutional investors and the public, with principal and interest payments collected from the future cash flows from the loan portfolio or group of assets purchased from the bank or other originator. While the securitization market is a major segment of the capital markets in advanced economies, in Israel this market is virtually nonexistent. In a World Economic Forum ranking of the size of the securitization market, Israel is in 54th place out of 59 countries that were ranked.
Securitization transactions are expected to increase the ability of businesses—in particular, small and midsized businesses—to raise funds. Securitization transactions are expected to contribute to increased sophistication of the capital market by diversifying credit risk among additional entities in the financial system, and accordingly, to reduce the cost of funding.Assisting small and medium sized businesses—for example, in the matter of the funding tool—is part of the Ministry of Finance’s strategic program.
The team believes that the development of the securitization market in Israel, on the basis of a proper incentive structure, appropriate regulation, and infrastructure which provides legal certainty to all sides in the transaction, is likely to bring considerable benefits, including: 
  • Improvement of risk assessment and management by the sides to the securitization transaction and reduction of funding costs, resulting from the possibility to isolate risks deriving from a group of defined assets, which is separate from the originator’s risks. This allows various capital market entities to better manage their assets and liabilities;
  • Increasing the range of credit sources in the economy: Development of the nonbank credit market, and making sources of funding more accessible to small and midsized businesses. Securitization makes it possible to transfer liabilities and risks to the capital market, and makes sources available for granting new loans by the banking system, by improving the accessibility of small and midsized businesses to funding sources;
  • Widening investment horizons for private investors and institutional investors by creating a new investment alternative, which is aligned with the risk profile of a specific investor and which is backed by quality collateral.

The team paid considerable attention to learning lessons from the global crisis that broke out in 2008, and placed special emphasis on changes in securitization market regulation in various countries around the world. The team recommends that at this stage, only plain vanilla (traditional) securitization transactions merit legal certainty and regulation.

The team assesses that the detailed proposals in the report provide an adequate solution to problems resulting from securitization transactions which were revealed after the financial crisis in 2008. The team’s main proposals are: 

  • Imposing an obligation on the entity which is selling the right to receive cash flows from defined assets to retain 10 percent of the securitized portfolio;
  • A securitization transaction is to be classified, from a legal standpoint, as a true sale and not as a loan, provided that specific conditions detailed in the report are met. This separates the originator's risks related to the assets transferred in the securitization transaction from other risks inherent in its operations;
  • Neutral taxation of securitization transactions, which will not create an excess burden on the originator or on investors, yet at the same time will not provide a tax incentive;
  • Establishing the terms for a public offering of securitization transactions, with increased transparency, and imposing legal responsibility on the various participants in the securitization transaction;
  • Establishing directives which regulate the rights of borrowers in loans transferred within the framework of securitization transactions. 
Until the recommendations are formulated in their final version, the team invites the public to present its position and submit comments on the main recommendations. Details about presenting positions and comments are detailed on the attached document (in Hebrew).