any other type of credit. over the same period, institutional investors have broadened the allocation of their assets, particularly with respect to investments abroad which have grown from 8 % to 19 % of their assets between 2005 and 2015. however, they have so far not taken much part in the retail credit market, either in mortgages or in consumer credit. the truth is that it is not typical for large asset managers in developed countries to enter the retail lending market. institutional investors in israel have entered the corporate debt market during the past decade, despite the fact that this sector shrunk as a share of gdp during that period. so we know that retail lending has been growing, but it is dominated by the banks, while corporate lending has not been growing as a share of gdp and has been the subject of competition between institutional investors and banks. what about small businesses? first, the importance of small businesses in the israeli economy is similar to that in the other oecd countries, in fact a bit larger, constituting 42 % of business sector gdp – a significant part of the economy that could be a source of economic growth. the banks increased the volume of lending to small and medium businesses from 36 % of banks ’ business sector credit to 44 % between 2011 and 2014. an international comparison is difficult because the distribution is very wide. what about pricing? well, the smaller the business, the higher the interest rate it pays. does this reflect the risk involved or market power? what is clear is that profitability over the past 4 years has been much higher in the household and small business sector than for other types of credit. even if we take into account that these years are upcycle years, and profitability is likely to be affected negatively in a downcycle, there are good reasons to believe that the higher pricing is in part due to market power. recent legislation and regulatory changes will tackle this problem and should bring the institutional investors, to that the small business and household credit market as well. the establishment of a credit registry tackles the problem of asymmetric information, while the legislation enabling securitization will allow institutional investors to enter the retail market indirectly – as it is done in many other places in the world – by connecting institutional capital with the banks ’ ability to grant credit, which will lead to an expanded supply of credit and lower financing costs. bis central bankers ’ speeches

understand quite well that behind the cloud of dust swirling in the wake of iceland ’ s financial collapse is a country fraught with opportunity. when the dust has settled, iceland ’ s net international investment position may turn out to be lower than it has been in decades, and in spite of sizeable gross debt, the treasury ’ s net debt position indicates that it will be possible to reduce gross debt rapidly, if the programme of fiscal consolidation set forth is followed strictly. the country ’ s natural resources are untouched by the financial crisis, and its human resources are relatively unscathed. the problem we face is not primarily a debt problem ; it is a payment flows problem, which can be attributed in part to the fact that owners of frozen isk assets either do not want to own them because they lack confidence in the icelandic economy or are barred from owning them by regulatory provisions or investment strategies. if this, and not an underlying debt problem, is at the core of the issue, there are two main ways to restore balance in the foreign exchange market and lift the capital controls : the central bank could use its limited foreign exchange reserves to buy up unstable assets, or it bis central bankers ’ speeches could render unstable assets more stable by creating a forum for long - term investors to buy them with foreign currency. the problem with the former of these options is that it transfers private sector debt to the public sector, at least temporarily. the foreign exchange reserves are leveraged, and this option requires reducing reserve assets although the debts remain. the treasury ’ s net debt position deteriorates as a result. the problem with the latter option is that, for the short term, the supply of kronur is too large in comparison with long - term investors ’ capacity to invest. if it is executed too rapidly, the exchange rate of the krona could fall sharply, at least temporarily, or the foreign exchange reserves could be depleted excessively. in addition, a number of investment projects are extremely foreign exchange - intensive because of imports. the krona could depreciate as a result, with heavy outflows of foreign currency, even if there were ample opportunities for investment. this is the problem the liberalisation strategy is attempting to solve. emphasis is placed on protecting the foreign exchange reserves by converting short - term claims against domestic entities to long - term investments to the extent possible. the central bank acts as an intermediary, and the auction format ensures that only a small portion of the foreign exchange reserves