Bank of Israel Enables Israeli Banks to Report Under US GAAP, Opening Door to Wall Street Listings

The Bank of Israel's banking supervisor, Danny Hachiaashvili, has circulated a draft directive allowing Israeli banks to publish financial reports according to US Generally Accepted Accounting Principles (US GAAP). This move aims to remove a major obstacle preventing Israeli banks from dual-listing their shares on the New York Stock Exchange. Currently, Israeli banks report under a unique framework set by the banking supervisor, which differs from both IFRS and US GAAP, complicating compliance with US regulations that require foreign companies to report under either US GAAP or IFRS.

The directive's implementation could significantly broaden the investor base for Israeli banks, which are currently dominated by local institutional investors and the Israeli public. Dual listing on Wall Street would increase accessibility for American investment funds, some of which are restricted to purchasing securities traded in the US. This could enhance daily trading volumes and liquidity for bank shares both in Israel and abroad.

However, financial experts caution that greater exposure to international markets may increase the volatility of Israeli bank stocks due to global sentiment and geopolitical developments affecting Israel. The extent of this impact will depend on the level of interest from international investors. The draft comes at a notable time, following a strong July rally in the banking sector, with shares of banks like Mizrahi Tefahot and Bank Leumi rising significantly.

Despite the potential benefits, banks will face regulatory and operational challenges, including compliance costs and adjustments required by the US Securities and Exchange Commission. Banks are currently reviewing the draft and have not yet committed to adopting the new reporting standards. The Bank of Israel has been working on this initiative for about a year, aiming to expand options for Israeli banks in the US market. The banking sector is also preparing for the upcoming Q2 earnings season, which will provide further insights into their performance and strategic directions.