Bankers Like Lehman for Supervisor

Many names have been mentioned in recent days as possible candidates to become the Bank of Israel's new supervisor of banks. Two of them, Yossi Bachar and Ze'ev Abeles, have already rejected the idea.

Many names have been mentioned in recent days as possible candidates to become the Bank of Israel's new supervisor of banks. Two of them, Yossi Bachar and Ze'ev Abeles, have already rejected the idea - Bachar after being asked by Bank of Israel Governor David Klein and Abeles after being asked by the Prime Minister's Office. But it seems the person most likely to succeed Yitzhak Tal is his deputy, Yoav Lehman.

Lehman would seem to be the natural choice, given the long tradition of the deputy supervisor moving up to the supervisor's job. But these are not ordinary times: The state comptroller is currently investigating the department's functioning, in light of the collapse last year of both Trade Bank and Industrial Development Bank. The comptroller's report is due out in April, and what it says will largely determine whether the next supervisor comes from inside or outside the department. Since Tal refuses to wait around until April, Klein will have to make the appointment before then - but he has apparently been kept abreast of the progress of the comptroller's investigation, so if he decides to appoint Lehman, that will indicate that the comptroller did not find the supervisory department greatly at fault. Yet the very fact that Klein has been looking outside the bank may indicate that the comptroller has not found the department blameless.

What is most surprising about Lehman's candidacy, however, is that even though he has always played the role of the department's "bad cop," he has many supporters among the executives of the five major banks. Two CEOs and one chairman said in private conversations recently that they consider him an appropriate candidate. "They say he's tough, but so what?" explained one. "A supervisor has to be tough. Lehman is a professional and he will maintain continuity in the unit's work. The most dangerous thing that could happen now is to get a supervisor guided by political factors."

This comment reflects the change that has taken place in the way the banks view the supervisor over the last year. Despite criticism of the department's handling of the Trade Bank and Industrial Development Bank affairs, the banks also credit Tal and his team with two decisions that helped them prepare themselves to weather the current economic slump: a September 2001 demand that the banks increase provisions for doubtful debts, and a 1998 decision raising the capital adequacy ratio from 8 to 9 percent.

It used to be the norm to hear a steady stream of complaints from the banks about the onerous requirements of the supervisor's department. Today, however, many banks admit that close supervision is an asset to the banking system. Some even say that the supervisor's restrictions can be helpful - like the rule limiting the amount of money a bank can loan to finance a corporate takeover. "There is no doubt that this restriction helps us withstand pressure from clients asking for a loan," said one executive.

The supervisor's rules also help the banks on two other fronts: withstanding pressure from the owners; and reassuring analysts and rating firms, who attach great weight to effective supervision.

The search for a replacement for Tal has aroused two fears among the banks. The first is that the political echelon might decide to get involved and appoint an inappropriate candidate - something that has not happened in the past. The second is that someone from outside will be appointed who is unfamiliar with the material and will therefore require a long learning period. There are too many urgent issues on the supervisor's plate for the system to be able to afford a long learning period, the bankers say. Furthermore, they note, an outside appointment always causes friction, and would probably result in one or two of the department's senior employees leaving, thereby depriving the newcomer of the benefit of their experience. Lehman would almost certainly be one of them.

Lehman is not without opponents in the banks. "He grew up in the supervisor's department, and hasn't a clue about the business world," charged one executive. "He tends toward extremism and has a suspicious attitude toward the world."

But his supporters respond that at least he knows the material and is in turn well-known to the bankers. At a time of economic uncertainty, they say, having someone whose policies, style and approach are known quantities is no bad thing. "He's tough, but you can talk to him," concluded one.