advanced approach to bank management and supervision, based on the establishment of risk - management systems rather than detailed rules. this requires the banks to invest much effort in setting up sophisticated information and management systems and an extensive database. the banking supervision department is devoting many resources to this subject. the supervisor of banks has already published a schedule and delineated the path to be followed in preparing for and completing the adoption of basel ii. this is an ambitious project, and it is very important that we succeed in implementing it. adopting the basel ii principles and those of sox 404 will improve overall management – and in particular risk management – and banks ’ control, and will institute the highest international standards in israel ’ s banking system. i hope that next year we will be able to stand on this platform and look back and see how much we have progressed in this vital aspect of banking, and in particular with regard to the competitiveness, efficiency, and robustness of the banking system. thank you.

. it will be of little avail if we achieve economic growth long term and attain a european standard of living without attending to the social issues. but we cannot handle them properly without such growth, and would even quickly increase their severity. for example, one could deal with the question of social gaps by means of drastic hikes in taxes and transfer payments, but such a policy would also have a serious adverse effect on growth, and after a few years this would lead to a situation in which we would all be more equal, but also poorer. that is no way to attract immigration ; on the contrary, it would boost emigration. and that is a position we do not want to be in. before dealing with the social problems we should examine them realistically, as a sine qua non for formulating the appropriate policy. the problem of poverty is too complex to be viewed from only one aspect, and it must be analyzed from several aspects. for example, although here it is generally accepted to measure poverty in relative terms, and thus to consider the problem of poverty as a question of social gaps, we should be aware of other possibilities. to illustrate : poverty can be viewed in absolute terms, i. e., in such a way that the poverty line is determined in terms of the level of real income considered the minimum required to buy a certain basket of goods, such as food, clothing and housing. if we define the poverty line of 1997 as the level of income defining poverty in absolute terms, we would get the result that the rate of poverty, using this definition, hardly changed from 1997 to 2004, and actually went down a little. it declined until 2001, and rose somewhat thereafter. the bank of israel is engaged in this complex matter of measuring different aspects of poverty, and i hope that in the bank's annual report for 2005, due to be published in the first quarter of 2006, we will be able to refer to the subject at greater depth, and that this will contribute to the public debate and to the formulation of policy on this issue. an aspect of poverty seen from another angle is the identification of the population that suffers most from poverty. we know that the highest incidence of poverty is in the ultra - orthodox ( " haredi " ) and arab sectors of the population, mainly because of the low participation rate of haredi men and arab women in the labor force. according to an estimate we carried out, these sectors of the population account for more than 40 percent of