• The trends in the financial markets remained favorable in 2006 and the financial system maintained its stability despite external and domestic shocks.  
  • Notable developments in 2006 included continued upturns in the equities market, declining bond yields as real long-term interest fell to a historical low, currency appreciation against the dollar coupled with relative calm in the foreign-currency market, and continued growth in corporate issues, foremost of bonds.  
  • Auspicious macroeconomic conditions and structural reforms made the market more liquid and tradable amidst increasing involvement of long-term institutional and foreign investors. The dominance of banks in financing the business sector and controlling the public's savings by means of provident funds, mutual funds, and management of deposits decreased gradually but steadily.  
  • These developments, coupled with a decline in credit risks, supported continued improvement in the resilience of the banking system. However, Israel's banking system has lower capital ratios than corresponding systems in other developed countries. Insurance companies' resilience slipped slightly despite the continued general economic improvement, as capital ratios declined and risk assets increased.  
  • Given the major changes that the financial system has undergone in recent years, developments and risks must be monitored regularly in order to identity needed adjustments. Concurrently ,long-term institutional investors, whose involvement in financing the business sector and managing the public's assets has increased greatly due to the reforms, should be placed under stronger supervision.  

The Financial System - Full File