Frenkel to rejoin Bank of Israel as Fischer replacement

Jacob Frenkel, who completed two terms as Bank of Israel governor between 1991 and 2000, has been nominated to return to his old role at the central bank when Stanley Fischer leaves the post.

A statement released yesterday by the Israeli government said prime minister Benjamin Netanyahu and finance minister Yair Lapid had decided to appoint Frenkel. He must still be approved, however, by a committee headed by judge Jacob Turkel and the Israeli cabinet, before he can take up the role.

Frenkel is currently the chairman of JP Morgan Chase International and the chairman of the board of trustees of the Group of Thirty (G-30). Since leaving the Bank of Israel he has held positions as vice-chairman of American International Group and chairman of Merrill Lynch International. From 1987 to 1991 he was the International Monetary Fund's chief economist.

Manuel Trajtenberg, a professor of economics at Tel Aviv University who was also a potential candidate to succeed Fischer, gives Frenkel high marks for his first two terms at the Bank of Israel. "Frenkel's previous term was marked by the final demise of endemic inflation, which is a great achievement, and the continuation of the long-term programme of liberalisation," Trajtenberg told CentralBanking.com. He described Frenkel as "highly suitable" for the role.

Since then 13 years have elapsed, and the Bank of Israel has not remained unchanged. One major change since Frenkel's time was the creation of a Monetary Policy Committee to take rate decisions, previously the sole prerogative of the governor. "The Bank of Israel has certainly become much more structured," Trajtenberg said.

Karnit Flug, a deputy governor at the Bank of Israel, was initially seen as a strong contender for the role, after Fischer appeared to give her his seal of approval. At a press conference following the announcement of his departure, Fischer said of Flug: "I would not have proposed appointing a deputy governor whom I did not believe would be able to function as governor when necessary."

Trajtenberg said Flug was a "very competent" economist, but added that she "cannot match the stature, experience and world reputation that Frenkel has".

Announcing his departure, Fischer said he planned to leave the central bank on June 30. It is not clear whether Frenkel will take up the role immediately, however – there were gaps between the terms both of Frenkel and David Klein, who succeeded him, and between Klein and Fischer. Nevertheless, "the transition from Fischer to [Frenkel] will be smooth and we can expect by and large continuity and stability," Trajtenberg said.

Fischer has revealed his intention to return to the US on leaving the Bank of Israel, fuelling speculation that he might be positioning himself to take the top job at the Federal Reserve, as chairman Ben Bernanke is expected to leave the role next year.