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If anyone at the Finance Ministry thought it would be possible to whip up a mini-reform that would weaken the relationship between the banks and the provident funds but would leave all the conflicts of interest in place, State Comptroller Eliezer Goldberg came along yesterday and put all the cards on the table in a manner designed to force complete separation.

For the banks, this criticism couldn't come at a worse time - smack in the middle of talks held by treasury director-general Joseph Bachar on reform in the capital market and the banking sector. The status of the provident funds is a central issue. This is crunch time with decisions being made under pressure from all sides. The banks are fighting for NIS 1 billion in annual income and maintaining their influence and sway over what happens on financial markets. When a lethal report like this one appears, stripping bare the banks' conflicts of interest, the scale tilts against them.

The comptroller gave the treasury's capital markets division no leeway in doing his audit. He describes their work as problematic and represents them as not knowing what's going on under their noses at the provident funds' investment committees. He also says they do not maintain even a basic database of the ownership structure of the banks that control the provident funds. After hearing comments like that, anyone with a few hundred shekels in a provident fund should ask himself if that's the smartest place to put his money.

The criticism may have been directed at the capital markets division, but it lit up the banking sector like a spotlight. The comptroller essentially laughs at the so-called "Chinese walls" that separate decisions made by the provident funds for members and decisions made by the banks. He focuses justifiably on the fact that the provident funds' directors are appointed by the banks, meaning no wall could be high enough.