Summary: 

  • In 2009 prices in the domestic financial markets rose steeply and gradually approached the early-2008 level, after a year (2008) of severe systemic shock due to one of the greatest financial crises in history and with share and corporate bond prices plummeting.  
  • The price declines in the domestic markets in 2008 resembled trends in markets abroad; the upturns in 2009, in contrast, surpassed those in other markets and were accompanied by falling market volatility and risk premiums.  
  • The global crisis dealt a milder blow to Israel's financial system than to those in other advanced economies; it focused mainly on the financial markets, whereas the financial institutions maintained relative stability.  
  • The corporate bond market exposed the domestic financial system to the ravages of the crisis abroad, following rapid expansion in 2005-07 and allowing an increase in the share of issues for the acquisition of real estate abroad-an industry that lay at the focus of the global crisis.  
  • In 2009, the corporate bond market started to function again: risk spreads narrowed sharply and issues gradually resumed, allowing the business sector to expand its activity despite the decrease in bank credit.  
  • The profitability of Israel's financial institutions-banks and insurance companies-increased notably in 2009 as the state of the real economy improved and the capital markets surged. Capital adequacy also improved markedly, partly due to capital issues and against the background of the supervisors' demand to refrain from distributing dividends.  
  • Despite the turn for the better, the global financial system remains clouded by uncertainty and is more susceptible to moral hazard than before. This is due to unprecedented government intervention designed to stave off the collapse of large financial institutions that, had they failed, might have aggravated the crisis and led to collapse of the financial system at large.  
  • Uncertainty in the domestic financial system also remained high due to the combination of uncertainty abroad and domestic factors including the resumed expansion of corporate bond issues before the adjustments warranted by the lessons of the crisis were implemented; the concentration of the financial system, which makes it necessary to contend with institutions deemed "too big to fail" and the attendant moral hazard, and the financial system's severe dependency on the resilience of large and complex business groups.  
     
     The Financial System - Full File