1. 1 The Israel Business Conference 2009 Rony Hizkiyahu, the Supervisor of Banks 13 December 2009 The Banks and the Capital Market—Credit Market Challenges in Light of the Crisis

2. 2 The Banks and the Capital Market– Credit Market Objectives in Light of the Crisis Characteristics of the banking system Characteristics of the capital market Weaknesses of the credit market during the crisis Challenges

3. The characteristics of the banking system Stable, conservative and concentrated Tight supervision, and stability-related limitations International standards––risk management, control, corporate governance, capital (Basel 2) Capital adequacy––average 13.5 percent in September 2009 High liquidity in line with excess liquidity in the economy

4. The characteristics of the capital market Wide range of investing entities Many issuers Gaps in regulation Dramatic increase in finance provided to the business sector High liquidity in the banking system (available sources for investments)

5. Main weaknesses in the capital market during the crisis and its implications for the financial system Before the crisis Underpricing Structural problems following the reforms During the crisis Steep decline in nonbank credit Lack of infrastructures for debt arrangements Loss of confidence in the markets (price volatility) 5

6. Challenges Adoption of appropriate criteria for risk management Dealing with pricing systems Creation of balance sheet mechanisms to ensure conservative conduct/management Ensuring a variety of types of credit and the extent of credit Improving regulation Boosting the public's confidence in the capital market 6

7. 7 thanks

8. NIS billion Bank Credit vis-à-vis Nonbank Credit 12/2004-9/2009 1.Include institutional investors, credit card companies, nonresidents credit, government and households and financial companies. Source: Information and Statistics Department.

9. Changes in Bank Credit vis-à-vis Nonbank Credit 2005-9/2009 1.Include institutional investors, credit card companies, nonresidents credit, government and households and financial companies. Source: Information and Statistics Department. NIS billion