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The Finance Ministry's Accountant General Nir Gilad convened an urgent meeting last night with the heads of the two major banks to persuade them to buy Industrial Development Bank's credit portfolio and deposits. The meeting was convened due to Industrial Development Bank's condition, which has worsened as institutional investors and private clients withdrew deposits.

The meeting, attended by Supervisor of Banks Dr. Yitzhak Tal, Bank Hapoalim CEO Eli Yones and Bank Leumi CEO Galia Maor, was still going on at press time.

The sale of the bank's portfolios would mean transfer of the bank's liabilities and rights to the acquiring banks, closing Industrial Development Bank. From the customer's point of view, the move doesn't change their obligations, only the name of the bank to which they must repay their credit. As part of the sale, the buying banks will receive all of Industrial Development Bank's legal rights, including mortgages, collateral and guarantees.

Gilad told Industrial Development Bank last week that the treasury does not want to inject capital to enable it to continue regular operations, due to budget constraints. Gilad noted the state is interested in ceasing involvement, and the treasury and central bank established a team to extricate the state from the beleaguered bank.

In the past few days, a wave of withdrawals hit the bank, including institutional investor Gmul pulling out NIS 140 million, increasing Bank of Israel's fears of a rapid deterioration.Despite Bank of Israel Governor David Klein's announcement he would provide Industrial Development with credit lines, there are fears the demand to withdraw deposits will be very great, requiring extensive credit.

It is unclear if the state is willing to provide guarantees for the credit portfolio in the event the loans prove more problematic than expected. Last night's emergency meeting discussed the means by which the two banks would take on collecting Industrial Development's debts and the the method for returning the NIS 7.5 billion deposits the state has in the troubled institution.

Financial sources believe without an agreement disengaging the state from the bank, there may be no alternative than the appointment of an administrator.

This would be problematic for bank customers as the bank would cease operations and the administrator would draft a plan for dissolving the credit portfolio and returning deposits, which could take a long time. The central bank is also concerned it would damage the Israeli banking sector's image, following the appointment of an interim manager four months ago after Trade Bank collapsed under the weight of massive embezzlement.