Credit Freeze in Israel

In another measure to fight inflation, the Bank of Israel has ordered the nation’s banks to cut back on the amount of credit they have been giving out. No date has yet been set for the new regulation and the amount and type of credit frozen will be decided jointly by the individual bank and the Bank of Israel.

The decision for the new measure was made because the amount of loans the banks have been making has considerably exceeded the rate of deposits, causing a constant flow of money into the economy. Up to now, the banks have been able to give credit according to their liquidity rate, the sum total of their deposits. This figure varies from day to day and so is difficult for the Bank of Israel to control.

Despite heavy fines by the Bank of Israel, the nation’s banks have been exceeding the credit regulations because of customer pressure. The amount over the regulations has exceeded IL 900 million during a time when bank deposits have dropped IL 400 million. The first expected to feel the new pinch are small depositors who will no longer be able to make overdrafts on their accounts. But business will also be hit except for those industries which are involved in export. These firms will continue to get credit on special terms.

The new regulations come after a two percent increase in the rate for loans were put into effect two weeks ago as part of the government’s efforts to combat inflation.

ISRAEL-BRITISH BANK STILL IN TROUBLE

Meanwhile, an offer to purchase the failed Israel-British Bank by an international consortium was withdrawn after the prospective buyers said they could not meet the Bank of Israel conditions for the transaction. The Israel-British Bank, which is still under the Bank of Israel control, is still up for sale for another nine days. A Tel Aviv District Court earlier this week named lawyer Ezra Goddard as receiver for the bank. Goddard said the bank had 10 days to find a serious buyer.

The first offer–and so far the only one–came from an international consortium headed by Dr. Tibor Rosenbaum, the owner of International Credit Bank in Switzerland. The Bank of Israel said the government would underwrite $25 million of the Israel-British Bank’s debts for anyone willing to buy it, but the foreign group had already announced it was not interested.

In the meantime, the Bank of Israel is reportedly determined to underwrite losses of the British branch of the bank, but no official stand had been adopted. The Supreme Court over-ruled Monday a lower court’s decision and decided that Yehoshua Bension, former manager of the Israel-British Bank should remain in custody eight more days. Bension was arrested two weeks ago on suspicion of embezzling funds from the bank.

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