, dr. karnit flug. it is premature at this stage to refer to the committee ’ recommendations, as it is due to meet several times more before it formulates its proposals and publicizes them. we do know, however, that the recommendations are expected to remain within the budget framework, and not deviate from it. in this context we must point out that for two years we have been stating in the bank of israel annual report that from 2013 the various fiscal rules are inconsistent with each other, as the planned tax reductions are not consistent with the planned path of an increase in expenditure and reduction in the deficit – growth of close to 5 percent will be needed to avoid exceeding the target deficit. the committee for examining and encouraging competition is also currently active and is expected to publish its recommendations shortly. this too is a serious and professional committee, and karnit flug represents the bank of israel on it, together with the supervisor of banks, david zaken. i expect that this committee will provide a good, although not simple, solution to the problem of concentration in the economy, and will demand a lot of work from policy makers in the implementation of its recommendations. the geopolitical situation is definitely worrying, and the negative scenarios, should they occur, are liable to have negative consequences for israel ’ s economy. these scenarios do not depend on the bank of israel ’ s policies, but yet we have to be prepared for the possible impact on the economy, and we hope that in the end, the negative scenarios will not unfold. what should we do, then, in the future? we must maintain the fiscal framework. it is possible that there will be an increase in the deficit as a result of the automatic stabilizers in the case of a sharp drop in gdp growth, but it would not be correct to take the initiative to increase the deficit beyond the possible activity of automatic stabilizers. monetary policy will have to take into account developments in inflation, growth, interest rates abroad, the exchange rate, and balance of payments. next week we will have to make an interest rate decision against the background of all these factors, and it will not be an easy decision. likewise, we must continue our determined policy of supervision of the banking system, through cooperation with the banks. in connection with this, concerns are growing about the credit repayment ability of several companies in the economy, and we must be aware of that. many are now asking if the current situation is worse than

everything to be here and now. but we need to deal with these issues properly, with the proper regulation, even if that takes time, since the damage of promoting unregulated financial activity will exceed the benefit, and the victim, as always, will be the public. good morning, in my remarks here today, i will present a general outline of the credit market in the israeli economy, and relate to parts of it that are supervised by various regulators such as the bank of israel, and to parts that are not supervised as of today, including the gray market. i will begin with a description of the market and the various players in it, continue with a description of the gray market within the financial system and the risks that exist in the gray bis central bankers ’ speeches market in its current structure, and finish with a presentation of my position in relation to how we must handle the main failures in this market. so what is the gray market, and who are the players in it? in order to understand this and to connect it to possible solutions, i would like to start with a short description of the financial intermediation framework in israel. by this i refer to the intermediation between the supply of sources of savings and demand for investment financing and consumption, between the supply of credit and the demand for credit. this framework can be divided into three main groups : the banking system, the nonbank financial institutions system, and the alternative financing market, which we refer to as the gray market. traditionally, financial intermediation between savers and borrowers takes place in the banking system through the provision of loans that are financed through deposits from savers. even now, despite the development of additional sources of credit, the banking system is the dominant system in israel among the various financial institutions for everything to do with financial intermediation activity. by way of explanation, as of december 2014, total household debt was about nis 433 billion. about 94 percent of that debt is to the banking system and credit card companies. over time, and following the adoption of technological improvements and alternative instruments, additional entities began operating and specializing in various components of financial intermediation. these entities include the nonbank financial system, which provides credit through financial entities such as pension funds and insurance companies. despite the fact that these entities are part of the institutional system and are subject to a regulatory and supervisory system, they still differ from the banks mainly in their access to liquid government sources. if we can