רוביני: "מיתון כלכלי בארה"ב ובאירופה - בלתי נמנע; יתכן שיהיה חמור יותר מ-2008"
Tal's rule made him unpopular. His successor faces even tougher decisions
Only a few hundred meters separate the offices of the big banks' managements on and the Bank of Israel's offices in Tel Aviv.
But what Bank of Israel governor David Klein sees from his window on Lilienblum Street is the one bank that has ceased to function ¿ Trade Bank.
Klein's bird's eye view and the beady eye the Supervisor of Banks' office kept on Trade Bank over the years, failed to discern that investment clerk Etti Alon was stealing the whole outfit from under their noses.
Eight months after Trade Bank's collapse, the Bank of Israel yesterday announced that Supervisor of Banks Yitzhak Tal is resigning.
The State Comptroller's report for 2002 will surely ask if Tal himself is to blame for Trade Bank's implosion. The Bank of Israel is convinced he isn't.
But the policy dictated by the supervisory department over the years, which supported the existence of small banks as competition for the big ones, has been found guilty for the sorry affair.
Recent events have proved that it is hard to supervise, and easy to steal from, small banks with outdated computer systems. They also proved that the small banks are no real competition.
Own goal
The collapse of Trade Bank, shortly followed by that of Industrial Development Bank, led to an abrupt policy change at the Bank of Israel. Hence the 180-degree U-turn by the supervisory department regarding little Maritime Bank, which it decided to allow mammoth Bank Hapoalim (TASE: POLI ) to gobble up.
The collapse of the two small banks created terrific pressure from the public, which ultimately led to Tal's request to leave. But meanwhile, his decisions regarding the banks, and Israel's big borrowers, have made him persona non grata in the business world and banking establishment.
Tal took his first important decision immediately on taking the job in February 1999: to demand that the banks increase their capital adequacy ratios, from 8% to 9%. At the time, his decision seemed bizarre. Nobody saw any particular reason to shore up the stability of the banks. With hindsight, his demand gave the banks an extra safety belt that proved critical, in the eyes of the rating agencies and international investment community.
His next decree was more aggressive. In August 2001, Tal advised the managements of the banks that they should increase their provision for doubtful debt, because of Israel's sorry economic situation.
The banks steamed. "Tal is intervening in management," they shrieked. "The decision is stupid, it will raise interest rates," hissed treasury officials. Knesset member Weizman Shiri, who lobbies for the bankers in parliament, even proposed to oust the supervisor over his proposal that doubtful debt allowances be increased.
Slamming on the brakes
Not half a year later, it transpires that Tal slammed on the brakes not a moment too soon. If anything, his decision was too late.
Bank credit had soared in recent years, far faster than the rate of economic growth. The mountain of credit poses a real threat to the banking system.
The first task Tal's successor faces is to maintain the stability of the banks while Israel's economy continues to contract.
Tal's replacement will also have to contend with one of the worst mistakes the supervisory department has made, which has been largely ignored. It was a decision dating from 1997. At the time, Tal was the deputy supervisor, under Zeev Abeles.
Abeles and Tal agreed to allow the Dankner family to acquire control over Bank Hapoalim (TASE: POLI ), in a deal entirely financed by bank credit. The only collateral was shares in Hapoalim, and some non-revenue generating properties.
That loan, plus several billion shekels more the banks lent to businessmen buying control over Hapoalim, United Mizrahi Bank (TASE: MZRH) and Union Bank of Israel (TASE: UNON), created a situation of co-dependence. The owners of the banks became dependent on the managements of other banks.
As the chairman of one of the banks put it: "Today, when I approve credit to finance the businessmen controlling the banks, I can't not think about the loans my companies have taken from the banks."
If in 2002 the supervisory department had to contend with the collapse of little banks, in 2003 it may be engaged in some real battles ¿ with the big borrowers, with the leveraged bank owners, and with the co-dependent relations created over the years between the banks and the big business community.
The first test Tal's successor will face is the approval of two Dankner deals. One is the deal in which Nochi Dankner seeks to acquire the controlling interest in IDB Holding Corporation (TASE: IDBH). Then there is the deal in which the other Dankners want to buy their businesses from themselves at a premium.
Tal's successor will have to balance two conflicting interests ¿ the rights of the Dankner family as businessmen and as bank owners, and the public interest in maintaining the stability of the banking system.
In a market where the banks control the entire financial establishment, and the central bank governor is stating out loud that it isn't impossible for a major bank to collapse, one would think that maintaining the stability of the banking system has top priority.