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Assessing the impact of macroprudential tools: the case of Israel

Nadine Baudot-Trajtenberg, Nitzan Tzur-Ilan and Roi Frayberg
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Nadine Baudot-Trajtenberg, Nitzan Tzur-Ilan and Roi Frayberg: Bank for International Settlements

Authors registered in the RePEc Author Service: Nitzan Tzur-Ilan ()

A chapter in Macroprudential frameworks, implementation and relationship with other policies, 2017, vol. 94, pp 107-218 from Bank for International Settlements

Abstract: The Israeli financial system withstood the global financial crisis (GFC) of 2007–09 relatively well and came out unscathed. Notwithstanding this favourable outcome, Israel is a small open economy, which means that its domestic financial conditions cannot be disconnected from the consequences of low global interest rates. The upward trend in domestic asset prices, particularly home prices, has prompted policymakers to use macroprudential policy tools. This paper examines the effects that those measures have had on various risk indicators pertaining to credit providers and individual borrowers. We find that two typical risk indicators – the average loan-to-value (LTV)) and payment-to-income (PTI) ratios – have declined. Moreover, the banking system has increased its capital buffer for possible credit losses on its housing loan portfolio. Nevertheless, the authorities in charge of macroprudential policy must ascertain whether the measures implemented are not shifting risks to other, perhaps less visible, parts of the financial system. To complete a full assessment of the impact such policy on systemic risk, more granular and better data would be needed.

Date: 2017
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