Bank of Israel warns — banks are abusing the law
A Bank of Israel study found that easing bankruptcy rules led to a short-term increase in filings and a long-term reduction in credit availability. Analysis of data from 14 European countries and Israel for 2001–2020 revealed structural changes in the credit market.
A study conducted by Yonatan Barzani, Dr. Roy Stein (Bank of Israel), and Dr. Georgi Walter (Eötvös Loránd University) analyzed the long-term effects of insolvency law reforms in 14 European countries and Israel. Data from 2001–2020 show that easing procedures for debtors causes a rise in bankruptcy filings, peaking after 3–4 years, after which indicators return to pre-reform levels within 6–7 years. However, the credit market undergoes structural changes: the growth rate of consumer lending declines, reaching a minimum after two years, and does not recover for at least five years. In Israel, the reform took effect in 2019; filings rose until 2022–2023, then returned to previous levels. Credit availability is expected to remain reduced. The authors note that accurately assessing the effect of the Israeli reform is complicated by the 2020 coronavirus crisis.