Israeli Prime Minister Benjamin Netanyahu announced Sunday that former Bank of Israel Governor Prof. Jacob Frenkel, who headed the central bank between 1991 and 2000, will replace outgoing Bank of Israel Governor Stanley Fischer, whose term will end next week.

The new governor’s nomination is pending the approval of the Public Service Nominations Committee, headed by Judge (ret.) Jacob Turkel, as well as a cabinet vote. The nomination faces a legislative hurdle, as the Bank of Israel Law of 1954 limits the governor to two five-year terms. The government may have to pass an amendment to the law to facilitate Frenkel’s nomination.

Once confirmed, the 70-year-old Frenkel will be sworn in as Israel’s ninth central bank chief by President Shimon Peres. Frenkel, a laureate of the 2002 Israel Prize in Economics, currently serves as chairman of JPMorgan Chase International, one of the three largest banks in the United States. He is expected to take office in mid-July.

Frenkel, who in the past rejected former Prime Minister Ariel Sharon’s offer to become the finance minister, agreed to resume his position as the governor of the Bank of Israel after Netanyahu’s top candidate for the position, Professor Elhanan Helpman, declined.

Israeli Finance Minister Yair Lapid met with Netanyahu over the weekend to finalize Frenkel’s nomination. Netanyahu then informed Fischer of the decision and he, in turn, informed Deputy Governor Dr. Karnit Flug—Fischer’s choice to succeed him in the post—of the prime minister’s decision.

Frenkel’s nomination came as a surprise, as the two-time bank governor was not in the running to replace Fischer. Netanyahu’s short list included former head of the government’s committee for social reform Professor Manuel Trajtenberg, head of the National Economic Council at the Prime Minister’s Office Professor Eugene Kandel, Bank Hapoalim Chief Economist Leo Leiderman, and Professor Avi Ben-Bassat, former director-general of the Finance Ministry.

The nomination was announced as the Bank of Israel was holding a farewell gala for Fischer, which was attended by Netanyahu, Peres, the cabinet ministers, the chairpersons of Israel’s various banks, and some 280 other prominent figures.

“We were blessed by your work in the eight years during which you served in this position,” Netanyahu told Fischer. “We steadily weathered the global financial crisis and you were instrumental in that. It was not taken for granted.”

“There is currently a wave of harassment directed at the private sector—the sector on which the entire economy relies—portraying the making of profits as a crime. This at a time when we need initiative and action, activism and creativity from our business women and men, who will lead the Israeli economy forward,” Netanyahu said.

Lapid told Army Radio on Monday, “Frenkel’s nomination is wonderful and undisputed. He was basically called up to serve his country again and that is not a simple thing since he will be taking a substantial pay cut.”

Knesset Finance Committee Chairman MK Nissan Slomiansky (Habayit Hayehudi) welcomed the nomination, calling it “a worthy appointment that is well suited to meet the challenges the Israeli economy faces at this time.”

MK Nachman Shai (Kadima) criticized the move, saying, “Nominating someone who has already served in this position is a sign of conservatism and lack of initiative.”

In May, while addressing the Herzliya Conference, Frenkel said, “I would not want to be the governor of the central bank when you have zero interest [rates], because there is very little you can do then [for the economy].” At present, the interest rate is 1.25 percent.

Frenkel, who has a bachelor’s degree in economics and political science from the Hebrew University of Jerusalem, and a master’s degree and doctorate in economics from the University of Chicago, was first named as governor of the Bank of Israel in 1991 by Prime Minister Yitzhak Shamir and Finance Minister Yitzhak Modai. He was serving as the director of research at the International Monetary Fund at the time.

Frenkel resigned unexpectedly in 2000, one year prior to the end of his second term, during Ehud Barak’s term as prime minister.

During Netanyahu’s first term as prime minister, from 1996 to 1999, the two led various economic and monetary reforms, including integrating the Israeli economy into the global financial system. Frenkel is also credited with reducing inflation rates, enacting a pricing reform and introducing the currency band, meant to protect the shekel’s exchange rate.

Frenkel served as vice president of American International Group (AIG) from 2004 to 2009. He resigned in the wake of the company’s collapse in mid-2010 and refused to acknowledge his personal responsibility to the company’s reckless real estate and credit policies.

Once in office, Frenkel will have to face various challenges, including Israel’s real estate bubble and rising housing prices. He will also have to decide whether to pursue Fischer’s interest rate and foreign currency acquisition policies.

As governor of the Bank of Israel, Frenkel will also have to maintain the state’s deficit goals to protect Israel’s international credit rating.