: 1. the structural changes that the economy has undergone in the last fifteen years. 2. the macroeconomic policy pursued by the government and the bank of israel before, during, and after the war. 3. the background conditions that affect all of us, i. e., developments in the global economy, and the security situation having said that, the economy is currently facing two important challenges : reducing the government debt, and tackling the problem of poverty. i have spoken in the past, and will speak again in the future, about the solutions to these problems. today, however, as it is my intention to deal with the problems currently facing the banking system, i will end this part of my address by saying that israel ’ s economic situation is very good, but we must try to ensure that this continues and not rest on our laurels. to you, the bankers, i would like to quote the english saying, “ bad loans are made in good times ; ” from a macroeconomic standpoint, we are now in good times. the targets facing the new supervisor of banks in the second part of my address i would like to talk about the banking system. the banking system plays a very important role in every economy, and of course, in israel ’ s economy too. what is important, of course, is that the banking system be stable, competitive, and fair, and that it serve all its customers - households and the business sector - well. first, i would like to thank the outgoing supervisor of banks, yoav lehman, for his 28 years of service to the bank of israel and to israel ’ s economy, and i would also like to congratulate the new supervisor, rony hizkiyahu, and wish him success in confronting the important challenges facing him within the bank of israel and vis - a - vis the banking system. within the bank of israel the supervisor faces the vital and difficult task of managing a large, complex department. the task is far from a simple one, particularly as it involves a transition to a new system of supervision, i. e., basel ii. the implementation of basel ii constitutes a major objective for the new supervisor and the banks. although we gave high priority to the implementation of the basel ii guidelines by the banking supervision and the banks, insufficient progress has been made so far. i must stress that basel ii is not just a new rule book, but it entails a whole new approach - with the supervision

speak about the need to improve the level of customer service. there are too many justified complaints, and the banks must invest resources to avoid such situations. i would like to clarify the position of the bank of israel on the matter of consumer protection. i am in favor of our involvement in this area, but i would like to place the responsibility where it belongs, and that is with the banks. to clarify my position : the situation should be that a dissatisfied customer first turns to the bank with his complaint, and only then, if he feels the complaint has not been dealt with properly, does he approach the banking supervision department. in a competitive banking system the banks must deal with most complaints against them, with the central bank acting only as the customer ’ s last resort and not his first port of call. in this context i would like to share with you a conversation i had. i was asked how i am settling down in israel, and if i understand what goes on here. i answered that the hardest thing to understand was my pay slip, but the truth of the matter is that there is something even harder to understand, and that is my bank statement. the last topic i would like to talk about is the cooperation between the various supervisors of the financial system. the supervisors currently cooperate with each other, and it is our intention to institutionalize this cooperation in an mou ( memorandum of understanding ). i view this step as a first stage in closer cooperation between the supervisors and the financial system. finally, the new supervisor faces enough challenges to stop him from being bored. his approach will be one of less detailed regulation, and more regulation according to principles. his success in this depends not only on him, but on responsible and competitive conduct by the banks. thank you.