Municipality funding a concern after Dexia nationalization

MK Pines-Paz asks Finance Minister Bar-On to investigate the ramifications.

The Knesset is worried about the effect of the global financial crisis on local authorities. Knesset Internal Affairs and Environment Committee chairman MK Ophir Pines-Paz has asked Minister of Finance Ronnie Bar-On and Minister of the Interior Meir Sheetrit to examine the ramifications of the nationalization of Dexia (Euronext: DEX) on Israeli municipalities that borrowed money from Dexia Israel (Public Finance) Ltd. (TASE:DXIL). Dexia Israel is the biggest lender to Israeli municipalities, with a 31.1% share of the market in 2007.

In an interview with "Globes" last week, Dexia Israel CEO David Kapah promised, "There has been no change in the mix of customers or in the bank's situation in Israel. Dexia Israel is not involved in sub-prime activity or in foreign investments. Its nostro activity has no exposure to foreign banks." He added, "Dexia Israel is not up for sale."

Pines-Paz nevertheless told Bar-On that he was worried that the changes at Dexia were liable to affect Dexia Israel's activity. This in turn is liable "to seriously affect the condition of local government, which has borrowed billions of shekels from Dexia Israel." Pines-Paz asked Bar-On to "expeditiously review the condition of the bank and its possible ramifications on most local authorities in Israel, especially the weaker local authorities, which are dependant on the proper functioning of the bank."

Pines-Paz sent copies of the letter to Governor of the Bank of Israel Prof. Stanley Fischer and Supervisor of Banks Rony Hizkiyahu. He has not yet received a reply.

Published by Globes [online], Israel business news - www.globes-online.com - on October 12, 2008

© Copyright of Globes Publisher Itonut (1983) Ltd. 2008

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