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BANK OF ISRAEL Office of the Spokesperson and Economic Information December 19, 2011 Press Release The Bank of Israel publishes its work plan and budget for 2012; the budget will total NIS 798 million The Bank of Israel today is publicizing the main points of its work plan and administrative budget for 2012. In October, the Bank's Administrative Council was appointed, in line with the Bank of Israel Law, 5770-2010. Five members of the Council are representatives from among the public, and the other members are the Governor and Deputy Governor. This is the first year that the Council approved the Bank's annual budget and submitted it to the Knesset's Finance Committee. Today, the Knesset's Finance Committee discussed the Bank's annual budget. The budget (presented hereinafter) that was submitted encompasses the administrative activities of the Bank and is constructed in order to allow the Bank to carry out its functions and achieve its primary goals for the year. A. The Bank of Israel's Objectives, Functions, and Goals The Bank’s objectives as specified in the Bank of Israel Law are: 1. To maintain price stability as its central objective; 2. To support other objectives of the Government’s economic policy, especially growth, employment, and the reduction of social gaps, provided that, in the Monetary Committee’s opinion, this support shall not prejudice the attainment of price stability over the course of time; 3. To support the stability and orderly activity of the financial system. The Bank’s functions as specified in the Law are: 1. Managing monetary policy; 2. Holding and managing the Foreign Exchange reserves of the State; 3. Supporting the orderly activity of the Foreign Exchange market in Israel; 4. Acting as banker of the Government; 5. Regulating the economy’s payment and settlement systems so as to ensure their efficiency and stability; 6. Issuing currency and regulating and guiding the cash system of the economy; POB 780, 91007 Jerusalem Tel: 972–2–6552713 www.boi.org.il 7. Supervising and regulating the banking system. In addition, the Governor shall serve as advisor to the Government on economic matters. The Bank’s main targets for the coming years as determined by management are shown below: Implementation of the new Bank of Israel Law Promotion of reforms in the financial system (including the banking system) and in the capital market Development of macro-prudential policy and instruments to strengthen the economy’s financial stability Strengthening the role of the Governor as advisor to the government on economic issues Development of the Bank’s human capital, and recruitment of and keeping staff of the highest quality Upgrading the information and statistics systems The development of state-of-the-art technological infrastructures The issue of a new currency series B. The Bank's Main Projects in 2012 The following are several major projects planned for 2012: An integrated computer system for the organizational, management and internal systems of the Bank (Enterprise Resource Planning, ERP) In mid-2011, the first stage of the installation of an ERP system (developed by the SAP corporation), and the switchover of some of the old systems that had been operating in the Bank, was completed. In 2012, the second stage of the installation is planned. This will allow the integration of several areas to a shared database, with analysis capabilities, portal tools and a management reporting system. A computerized system for managing the foreign reserves––Integrated Treasury Management System (ITMS) In 2009–11, a new computerized system for managing the foreign exchange reserves and the Bank's activities in the domestic market, developed by Wall Street Systems (WSS), was installed in the Bank. The second stage of this project is planned for 2012. The system will assist in implementation of the new Bank of Israel Law, and expanding the types of assets that the Bank uses for the management of the foreign exchange reserves. The system supports all areas of foreign exchange reserves management (back office, middle office, and front office functions, as well as the control system), and includes functions that assist with investment-related activities (such as recording transactions, message creation, management of market risks, accounting development, cash flow management and reconciliation of nostro accounts). POB 780, 91007 Jerusalem Tel: 972–2–6552713 www.bankisrael.gov.il Bank of Israel central data warehouse (DWH) This project is the construction of a new central infrastructure for managing economic data at the Bank of Israel. The central data warehouse will contain most of the economic information in the Bank, and it will service Bank employees as well as external users. So far, data on specific areas of financial activity in the economy have been entered. This project is expected to take another few years, during which most of the Bank of Israel's data on the financial system will be incorporated into the warehouse, and advanced tools will be integrated for the input and improvement of the data and their retrieval and analysis. Regulatory information infrastructure The project is to develop an information infrastructure for advanced data management for the Banking Supervision Department. With the switch of the Banking Supervision Department to a risk-focused system of supervision as is the accepted practice in the major regulatory authorities around the world, and the adoption of Basel II in Israel, a project was initiated to set up a new support system. When the project is completed, the supervisory authority will have available an advanced information system that includes a new system of receiving data, a data warehouse that enables data retrieval and flexibility in the way the information is shown, a comprehensive database showing all the information and data relating to each banking corporation, and advanced research tools. Planning the renovation of the Bank's premises in Jerusalem The planning of the renovation of the Bank’s premises in Jerusalem will continue in 2012. The extent of the renovation and its required budget will be determined by the Council. The renovation will be carried out in line with the Council decision, beginning in 2013. The issue of a new currency series In order to maintain the public’s confidence in the currency system, it is generally accepted practice in advanced countries to replace the series of banknotes in circulation once every 10–15 years, even without any extraordinary events, due to obsolescence of existing security features and the development of new and sophisticated security features aimed at minimizing counterfeiting. As such, the Bank decided to replace the currency series in Israel, and to integrate into the new series sophisticated security features, among the most advanced in the world, which were developed in recent years. In 2012, funds will be budgeted for the process of planning the issue of the new series, and in 2013 the new series will be issued. C. The Bank's Budget The Bank of Israel's budget allocates funds for the administrative activities of the Bank necessary for fulfilling of its functions and achieving its goals. In accordance with the Bank of Israel Law, the Bank of Israel's budget is divided into several areas of activity: 1. Management and Head Office (the expenditure budgets of the bodies that deal with the management of the Bank and the provision of services and support); POB 780, 91007 Jerusalem Tel: 972–2–6552713 www.bankisrael.gov.il 2. Carrying out the Bank’s functions (the expenditure budgets of the departments that perform the Bank’s functions); 3. Representative office abroad; 4. Pensions; 5. Investments; 6. Income; 7. Reserve; 8. Currency issue. The budget of the Bank of Israel for 2012 totals NIS 798 million, compared with NIS 704 million in 20111, and NIS 674 million in 2010. The NIS 95 million (13.5 percent) increase in the budget for 2012 is attributed primarily to: Pensions: An increase of NIS 49 million (23 percent) stems from a forecast increase in the number of retirees due to the coming into effect of a change in wage agreements. The increase in the number of retirees is expected to lead to increased efficiency and the hiring of young employees who have a lot to contribute at a lower salary. Reserve: In 2012, a NIS 19.5 million reserve was allocated to the Administrative Council, compared with only a NIS 3.2 million reserve in 2011. The difference is mainly due to the fact that in 2011, the reserve was allocated NIS 10 million from the sale of an asset in Tel Aviv. The total reserves in the Bank's 2012 budget reaches NIS 35 million. These reserves will only be used under the conditions set for their use. Investments: In the Bank's 2012 budget, there was an increase of NIS 20.6 million (33.7 percent) in the investments budget. In 2012, the Bank plans to carry out several major infrastructure projects in the business continuity, logistics, and technology areas. In addition, there are investments related to the issue of a new series of banknotes. For details on major projects, please see Section B above. Budget in future years: 66 percent of the budget for permitted commitments for coming years stems from the permitted commitment for the issue of new currency. The budget for printing money is expected to increase from NIS 58 million in 2012 to NIS 308 million in 2013, due to printing costs of the new series of banknotes. Accordingly, the effect on the overall budget in 2013 will be greater. Personnel ceiling (maximum): The maximum headcount for 2012 is 701 positions (compared with 726 positions in 2011). In 2011, actual employment was significantly lower, at only 706 positions. The administrative activities budget does not include income and expenses stemming from the sale of monetary instruments, granting of credit to banking corporations and other financial institutions, activities related to managing liquidity in the economy, and 1 On January 23, 2011, the Finance Committee was informed of an increase in the Bank of Israel budget for 2011 of NIS 9 million, from NIS 694 million to NIS 703.7 million. POB 780, 91007 Jerusalem Tel: 972–2–6552713 www.bankisrael.gov.il foreign exchange reserves investments. Income and expenses from these types of activities are reflected in the Bank's financial statements. Table 1: The Bank of Israel’s Budget for 2012 (NIS thousand) 2012 01 02 03 04 05 06 07 08 Bank of Israel Management and Head Office Performance of Bank’s functions Representative office abroad Pensions Investments Income Reserve Currency issue Expenditure budget 798,165 207,914 169,498 Transfers from 2011 18,969 Permitted commitments for coming years 477,488 17,665 Personnel ceiling 701 275 Original 2011 budget 703,741 212,421 Actual expenditure 2010 607,238 164,742 854 67,056 424 162,484 149,447 2 3,150 2,066 209,142 61,128 (430) 3,219 52,628 195,012 44,421 (1,628) 3,897 257,813 81,732 (452) 19,571 58,193 15,783 55 75,078 1,817 515 317,635 POB 780, 91007 Jerusalem Tel: 972–2–6552713 www.bankisrael.gov.il 53,178