• The attack that took place on October 7 and the Swords of Iron war that began as a result are the realization of a geopolitical shock stress scenario. The realization of this scenario did not led to impaired financial stability in the economy.  This was partly due to the high standards of prudential regulation prior to the outbreak of the war, and thanks to preventive measures that the Bank of Israel took at the beginning of the war, as well as the government’s assistance programs.
  • The war’s impact was felt through all of the main risk exposure channels. However, in view of the policy measures that moderated the transmission of the shock, the risk level increased only in the macroeconomic channel, as reflected in an increase in the country’s risk premium.
  • Despite household’s increased difficulties in repayment debt in view of the monetary tightening that continued since the beginning of the year and the real erosion of independent sources, the volume of household credit at risk remains low. This is true even when considering the impact to the income of some households as a result of the war, which may increase their difficulty in servicing their debt.
  • The war’s consequences for the activity of construction companies raised the credit risk in this industry, in addition to the increase in financing expenses, which had a negative impact on the financial state of construction companies even before the war—as indicated in the Financial Stability Report for the first half of the year.
  • The security buffers that the financial institutions built up prior to the war, and policy measures adopted with the aim of helping households and businesses deal with the implications of the war, continue to moderate the impact of the shocks on the financial system and to maintain its stability.
  • Insofar as the war’s duration, severity, and negative economic consequences intensify, the financial system can expect further challenges.

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