, perhaps, are the implications arising out of the basel ii accord. banks, as we all know, are subjected to more intense regulation as compared to the non - financial firms. this is probably because the banks possess certain “ special ” characteristics : banks are much more leveraged than the other firms due to their capacity to garner public deposits. the asset - liability structure of the banks is also different from not only the non - financial firms but also the financial firms. to illustrate, the risk in an insurance company arises mainly from the liability side of the balance sheet in the form of insurance claims whereas for the bank the risk mainly comes from the diminution of asset values ( for example, illiquid loans that are not fully recoverable ). the deposits which constitute a major part of the liability of banks are repayable on demand, unsecured and their principal amount does not change in value whereas the loans of a bank are illiquid and there can be erosion in the value of loans or of other assets. the liquidity transformation by an insurance company is in the reverse direction as compared to a bank. the balance - sheet structure of an insurance company is the least likely to give rise to systemic risk, whereas banks due to their typical asset liability mismatches i. e. long term assets funded by short term liabilities, may be prone to ‘ run ’ and pose a very high degree of potential systemic risk. the resolution costs of systemic bank insolvencies and significant banking problems can be substantial. the financial services regulators and central banks are increasingly focusing their attention not only on the health of the individual banks and financial institutions but also on issues of financial stability. bank regulation is now increasingly getting risk - centric. this process had its origin in the cooke committee or the basel i proposals which for the first time prescribed a risk - based capital adequacy framework for banks by recognizing that different counterparties had different risks and therefore had to be risk - weighted differently. accordingly, the risk - weights of 0 %, 20 % and 100 % were assigned for the exposures to government, banks and corporates, respectively. further, for the first time the framework required capital to be maintained for the off - balance sheet exposures also. moreover, capital was seen as multi - tiered with tier 1 and tier 2 capital and some jurisdictions permit the use of tier 3 capital as well. these proposals were path - breaking considering the credit risk management capabilities of the banks in 1980s

karnit flug : where is society headed? main points of a speech by dr karnit flug, governor of the bank of israel, at the central bureau of statistics conference, jerusalem, 17 february 2014. * * * i will begin my remarks with data from the oecd, which compared gdp per capita in its member countries with the us, broken down into factors which explain the gap between the various countries and the us. in 2011, the gap between gdp per capita in israel and the us was close to 50 percent. the oecd also tried to project what the picture will look like in 2060, assuming that current policy trends in the various countries, and expected demographic trends, continue. the gap between israel and the us is expected to remain more or less the same, as israel is forecast to decline by four places in the country ranking. this is clearly a troubling picture. economic policy is conducted under various trends and constraints, though we must obviously remember that over the long term we can affect the overall framework of the constraints as well. these trends and constraints include demographic trends, the geopolitical situation, the level of governance and efficiency in the public sector, the scope of public expenditures, taxes and the debt, and of course, the global environment in which we work is very challenging. expected demographic trends point to two very dominant factors. a change is expected in the composition of the population, by sector, with an increase in the share of the arab sector, and more so of the ultra - orthodox sector, in the overall population. there is also a change expected in the age distribution – israel ’ s population is relatively young, compared with advanced economies, but there is an aging trend by us as well, and the share of those 65 years and older, currently around 10 percent, is expected to reach 17 percent. in the labor market, the employment rates of ultra - orthodox men and arab women, as known, are low. the productivity of the people from those population segments who do participate in the labor market is low, on average. the good news is that there is improvement, albeit slow, in the employment rate of these two segments of the population. however, if we make a radical assumption, that the participation rates of those sectors will remain at current levels, demographic trends on their own are expected to reduce the employment rate by 7 percent in the long term. thus, it is important that we continue to invest in increasing the participation