. by extending work on patterns of cooperation and competition among firms in other industries to the financial sector, io might help shape regulatory structures that can reduce the potential for contagion during periods of financial stress. 2 there is work at the federal reserve board on some relevant topics. see, for example, li and schuroff ’ s ( 2012 ) working paper, which shows that about 30 large and highly interconnected “ central dealers ” provide valuable forms of liquidity to hundreds of smaller periphery dealers while simultaneously offering more immediate, but more expensive, execution to investors relative to those offered to periphery firms. dan li and norman schuroff ( 2012 ), “ dealer networks, ” social science research network working papers series, march 15. this topic is addressed at somewhat greater length in daniel k. tarullo ( 2011 ), “ industrial organization and systemic risk : an agenda for further research, ” speech delivered at the federal reserve board conference on the regulation of systemic risk, washington, september 15. bis central bankers ’ speeches as important as io research can be in developing financial regulation, the financial sector is in key respects sufficiently different from other industries as to limit the relevance of at least some existing research. in addition to the just - noted contractual interconnectedness of competing firms, the combination of correlated asset holdings, maturity transformation, and mark - to - market accounting means that distress at one firm leading to asset fire sales can create problems at competing firms. finally, the presence of systemic risk in financial - sector intermediation adds an important consideration not normally present in io analysis of other industries. thus, as noted earlier, too - big - to - fail problems can affect the analysis. also, prudential regulation can create opportunities for arbitrage both among products and practices in the regulated sector and between the regulated and unregulated sectors. although the characteristics of the financial sector may limit the relevance of conclusions from io research in other sectors, they do not limit the relevance of the questions about industry structure and relationships asked by io economists. they argue, instead, for combining the io approach with the specialized learning of finance, a part of economics that has grown so important precisely because of the manifold ways in which the financial sector differs from other industries. scale and scope economies in the financial sector there are few topics within io more familiar than that of scale and scope economies. 3 and there are few reform proposals that have been put forward more regularly since the start of the financial crisis than those to

, with the transition to an upward - sloping band, the slope of the band was defined as reflecting differences between inflation in israel and that in other countries ; these too have disappeared ; · next, in the wake of the development of high - tech industry, capital import for investment began on a large scale. this capital inflow is not connected with differences in interest rates or in inflation between israel and other countries, so that it is illogical to limit exchange - rate fluctuations because of it ; · while these changes were taking place, and as we agreed in 1994 to allow the market to determine the rate of exchange, a domestic foreign - exchange market developed. it involved domestic banks and foreign financial institutions. daily turnover is growing, and the market has low volatility. the fact that the bank of israel avoids market intervention, and the experience of external financial shocks have led to a better awareness among the public of exchange - rate risk. this had a dual effect : a. speculative activity is a rarity in the market. b. when assets and liabilities portfolios are being put together, interest - rate differentials between israel and abroad, which have existed for a long time and still exist are outweighed by exchange - rate risk. consequently, it is difficult to discern a change in the composition of assets and liabilities portfolios in response to changes in interestrate differentials around their current level, so that this component of capital flows has hardly affected the rate of exchange. in other words, interest - rate differentials do not explain why the actual rate of exchange is close to the bottom limit of the band. the main reasons for the closeness lie in the inflow of long - term capital coupled with the upward slope of the limit of the band. for the sake of accuracy we should add the recent weakness of the euro against the dollar. on the other hand, protecting the lower limit of the band will cause financial complications : · the purchase of foreign currency to lead towards a new equilibrium must be undertaken while prices are falling. the current positive slope, even if it falls to zero, does not allow this to happen, so that it is a non - stabilizing factor. · the obligation to purchase foreign currency means that the initiative in implementing monetary policy is transferred to the importers of capital, although they have no intention of participating in such management. they import capital according to their own needs, and not to inject into the economy in an ordered manner the liquidity it