Travel Reference
In-Depth Information
Banking and Financial Markets
Israel has about twenty-fi ve banks, including mortgage lenders, foreign institutions operating
in Israel, and other fi nancial service companies. But the industry is dominated by fi ve major
groups that account for more than 90 percent of all assets. That is a high degree of concentra-
tion even for a small economy like Israel's, and in recent years the trend has grown more pro-
nounced as larger institutions have bought up smaller ones. Israeli banks are universal banks
in the sense that they provide a host of functions besides offering loans and deposits. They
underwrite the sale of new securities, provide brokerage services to stock market investors,
manage investment portfolios for clients, sell insurance, and issue credit cards.
Israel's larger banks have traditionally had a large presence abroad, mainly in the United
States and Europe, where they attract foreign-currency deposits from Diaspora Jews. In more
recent years, as the opportunities for growth at home have been constrained by industry con-
centration and regulators, the largest banks have sought to expand abroad, mainly into Eastern
Europe and the countries of the former Soviet Union.
Regulators have sought over the past decade to pare back the role of the banks to increase
competition in the fi nancial services industry and prevent the confl icts of interest that arise
when a single institution offers an array of fi nancial products. In 2005, the banks were ordered
to divest their management of mutual and provident funds and have been forced to limit their
holdings in nonbank companies. As a result, insurance companies and institutional investors
have become a major source of corporate fi nance: they buy company bonds and make direct
investments in infrastructure and real estate projects.
The Tel Aviv Stock Exchange (TASE) is Israel's only market for trading stocks and bonds.
About 630 companies are listed on it, and its aggregate worth (market value) stood at $134 bil-
lion at the end of 2008, accounting for about 67 percent of GDP, compared with a ratio of
83 percent for the United States (both percentages represent relatively low levels after the col-
lapse of share prices in 2008, but Israel's percentage is consistently lower than that of the United
States). The twenty-fi ve largest companies by market value form the exchange's benchmark
index, the TA-25, or Maof. The TASE also trades government and corporate bonds, whose
market value stood at $189 billion at the end of 2008. In addition, the exchange serves as a
marketplace for trading options on the TA-25, individual stocks, foreign currency, and about
350 fi nancial products that track various global indices. Foreign investors held 21.5 percent of
shares traded on the TASE in 2008.
Many Israeli companies choose to list on overseas stock exchanges instead of, or in addi-
tion to, the TASE. About 150 Israeli companies are traded in the United States, primarily on
the Nasdaq Stock Market, where Israel has the second-largest contingent of non-U.S. compa-
nies. More are listed on European exchanges, mainly the one in London. Listing abroad gives
companies easier access to foreign investors and raises their profi le among foreign customers.
This is especially the case for Israel's high-tech companies, which do almost all their business
outside Israel and account for the bulk of the Israeli companies traded in foreign markets.
Venture capital is another critical component of the Israeli fi nancial system — indeed, more
so than in nearly any other country —because it is the chief source of fi nance for technology
