stability of the financial system, of which the banks are a central component. it is natural that in a time of crisis and uncertainty, such as the present, the banks should exercise special caution in their credit policy. moreover, the supervisor of banks and i encourage the banks to be more careful and not to take unnecessary risks – – but this too must be to the right degree. hence it is essential that the banks, which are one of the most crucial elements in the economy's ability to continue to grow, strike the correct balance between their credit policies, which at this time must be cautious, and the needs of the economy, particularly the business sector, for finance. i am not speaking only about the supply of bank credit, but also about its cost. recently the bank of israel reduced the interest rate sharply, with the purpose of helping to lower the cost of credit to the business sector and households. in practice the banks hardly reflected these cuts in the cost of credit they offered. and here again, although in this special period spreads are expected to increase, it is important to maintain a sense of proportion and not act excessively. to put it another way, i repeat what i said to you in previous years, " good bankers can make good loans in bad times, " and i have every confidence that in this hall we have good bankers. as an economist, i would like to explain this issue by noting that this relates to externalities. thus, if all banks significantly tighten their credit policy the economy will grow more slowly, thereby retrospectively justifying the step they took. on the other hand, if every bank takes into account that even slight easing of its credit policy in its marginal decisions will make the economy grow faster, this will retrospectively justify their decision. one of the bank of israel's roles is to help to achieve the right balance. to do this we will, monitor the amount of credit each bank gives, among other things. we see no conflict between our responsibility to support the return of the economy to rapid, sustainable growth, and our responsibility to support the stability and strength of the whole financial system, and specifically of the banking system. the financial crisis is still with us, and is too soon to predict when it will end. we do know, however, that it will end, and the economy will return to growth rates similar to those of the last few years. hence the importance of not wasting valuable time. and i am saying this when the steps formulated

harmed, and the government will continue to follow that path in the future too. the challenge confronting us at this time is to preserve the relatively good situation in the banking system and to take the steps necessary to enable the economy to emerge from the current period in the best way possible. this is our main objective, and by " our " i mean the government, the bank of israel, and mainly the bank supervision, but it is surely also an important objective for you, the banks. there is another goal, in the main for the policymakers, and that is to make the period of the slowdown in growth as short as possible, to keep any damage to a minimum, and to return quickly to the path of rapid, sustainable growth – essential not just to the economy, but to israel's overall strength. one of the most important aspects of this is the accessibility of the private sector – particularly the business sector, including medium sized and small businesses – to sources of credit, to enable it to continue producing and developing. at this time, in the shadow of the crisis, accessibility to nonbank credit and to credit from abroad is very restricted. bank credit, on the other hand, continues to expand. the steps formulated by the ministry of finance with the securities authority, and with the cooperation of the bank of israel, give a partial but significant answer to the question of credit sources. 1. with regard to nonbank credit measures have been formulated to arrange debts to holders of corporate bonds via credit officers, the establishment of funds to deal with nonbank credit jointly with the financial institutions, and making credit funds available to exporters and medium sized and small businesses. 2. with regard to bank credit, steps have been designed to give state guarantees for the issue of subordinated notes by the banks, which means increasing their sources for advancing credit. this program is an important means of strengthening the economy's ability to deal with the shocks emanating from the global economy. israel's banking system has an important function to fulfill with regard to the second point i mentioned above, i. e., increasing the sources of bank credit, and generally in all matters related to making credit available to the economy. the banking system cannot allow itself to ignore this important role. this is especially the case bearing in mind that unlike other sections of the business sector the banks enjoy the benefit of the safety net spread by the government and the bank of israel in the form of their commitment to maintain the strength and