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In recent months, we have heard less from Industrial Development Bank, but that potato is still hot and damaging the economy, even if it's not obvious in the national accounts.

For good reason, Bank of Israel Governor David Klein demanded that the bank sell its assets and liabilities portfolios by the end of last year. He apparently understood that the bank's managers have a vested interest in keeping it alive, even bleeding and convulsing. As long as it can pay salaries, the bank presumably will continue to operate in one constellation or another.

The Finance Ministry has NIS 8.1 billion in deposits at the bank. Its equity at the end of Q3 2002 was NIS 795 million, almost half of which belongs to the state. The rest is also publicly owned, since the government controls the bank.

Therefore, every shekel Industrial Development Bank loses, and in 2002 it lost 400 million, is a net loss for the Israeli public, shareholder and depositor at the institution.

The bank's managers indeed may mean to sell the portfolios, but they can't pull it off. The major banks, themselves battered by misadventures in business credit, are not interested in buying a can of worms, and therefore, have expressed minimal interest in buying the portfolios kit-and-caboodle. In fact they are not too interested in buying even the most lucrative portions. Without selling the portfolios, Industrial Development Bank could follow in the footsteps of Agricultural Bank, which collapsed more than a decade ago but still exists as a legal entity collecting debts.

At Industrial Development Bank, apparently there is still something to rescue if borrowers understand that the bank's collapse won't release them from repayment , if the Bank of Israel understands that the public will pay the cost of sky-high interest to Industrial Development Bank, and if the bank's managers understand they can't milk this bleeding cow ad infinitum. But mostly, there will be something to salvage if the treasury understands that the delay in selling the portfolio is costing the state millions of shekels a month.

Treasury opposition to granting state guarantees to banks that buy its credit is understandable in light of the budget problems and the disincentive they offer buyers to collect effectively. Therefore, it is necessary to conduct a quick sale of what can be sold, and the rest must be transfered to other banks for collection in exchange for management fees. Industrial Development Bank must be closed and its expnsive and superfluous operations liquidated.