Israeli Banking Crisis of 1983

The banks in Israel became the public sector institutions by necessity and not by intention. With the exception of the First International Bank of Israel, the Israeli government, in 1983, rescued all of the country's large banks. This action by the Israeli government was necessitated when the disclosure of widespread share manipulation in publicly traded bank stocks caused bank stock prices in Israel to crash. The eventual cost to the Israeli government of the rescue of the banks has been estimated to range from a minimum of US$7 billion to as much as US$10 billion.

During the 1970s and the early-1980s, Israel's banks engaged in reckless lending practices. A high proportion of the volume of these loans went to Israel's collective farms, which the banks believed the government would never allow to fail. The banks, however, had to write-off approximately one-quarter of the loans made to kibbutzim and 20-percent of the loans to moshavim collective farms. Other high-risk loans, however, also were i

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s remained high in Israel in the face of very high rates of inflation. The banking system permitted accounts to be held domestically, denominated in various foreign currencies, or indexed directly to the domestic price index. Similar linkages affected borrowers' interest rates, Israel government bonds, insurance, pensions, and other economic assets. The economic assets of most Israelis rose automatically to keep pace with rapidly increasing prices. Thus, most Israelis were less than willing to make sacrifices to bring the inflationary spiral under control. Causes of the Crisis It was the crash of the stock market precipitated by the collapse of banking shares, however, that brought on the downfall of Israel's largest banks. Israeli banks act as underwriters, stockbrokers, and fund managers. They account for over 80 percent of all share-trading volume in the country. Bank Hapoalim, Bank Leumi, and Israel Discount Bank together account for 65 percent of all share-trading volume in Israel. Manipulation of Share Prices The instability of the demand for money in Israel in the 1970s and in the 1980s has been attributed primarily to changes in the performance of financial markets. These changes accelerated all over the world
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Some common words found in the essay are:
Debt Israel's, Finance Minister, Bank Israel, Management Israel, Israeli Public, Non-Voting Shares, Growth Unemployment, Share Prices, Tel Aviv, Inflation Israel, israeli government, stock market, budgetary process, israeli banks, micro adaptations, israeli economy, financial crisis, foreign debt, bank israel, fiscal restraint, stock market crash, current account deficit, tel aviv stock, 1983 financial crisis, israel's foreign debt,
Approximate Word count = 5270
Approximate Pages = 21 (250 words per page)

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