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The bankers' hopes were dashed.

The Bank of Israel officially announced at the end of last week that it fully supports the conclusions of the panel chaired by the treasury's director general, Joseph Bachar.

Stanley Fischer made that announcement two months after taking over as central bank governor. In that time, he thoroughly studied the proposed reform, met with the leading bankers and heard their objections.

His conclusion was a terrible letdown for the bankers. They had hoped Fischer, previously an official at the International Monetary Fund, would share their horror. They may have also hoped that Fischer, who had served as vice chairman of the American giant Citigroup for four years, would identify with them, the bankers, more than with the treasury clerks.

But what happened on Friday may help the crushed bankers understand why Fischer sides with the treasury, not them.

Citigroup, the biggest financial corporation in the world, officially announced that it's selling most of its asset management business to Legg Mason.

The move will help Citi focus on distributing a wide range of investment instruments, and it will reduce its conflicts of interest as a creator of investment instruments, which is also supposed to advise clients to invest in rival instruments.

Not waiting for Spitzer

Four years ago, New York Attorney General Eliot Spitzer declared war on Wall Street's conflicts of interest, forcing the big commercial and investment banks to institute sweeping structural reforms.

But Citigroup didn't sit around waiting for Spitzer to attack. In recent years, it has pursued structural reforms at its own initiative. Among other things, it separated its equity research department from its investment banking division. It had economic incentive: Citi's mutual funds had done quite poorly in recent years, which did badly by the bank's customers, its positioning and its financial results.

Citigroup CEO Charles Prince admitted it openly. In a chat with analysts on Friday, after the transaction with Legg Mason had been announced, he explained that Citi's results from asset management had left something to be desired.

Even after the Citi-Legg Mason move, America's banks remain riddled with conflicts of interest. Citi and the rest are hardly models for emulation in that respect.

But the United States has a gigantic capital market where most asset management is in the hands of private investment banks. In Israel, most asset management is in the hands of the two big banks.

Israel's banks have much the same conflicts of interest as Citi had, and their results in asset management also leave much to be desired.

But it would never occur to them to attack the problem at their own initiative, as Citi has. Quite the contrary: They are fighting tooth and nail against the Bachar panel's attempt to tackle the conflicts of interest.

Sorry, we're broke

Instead of reaching conclusions from the miserable consequences of the conflicts of interest, from the pitiful returns the banks' own provident and mutual funds have provided over the years, they are investing massively in campaigns to smear the nonbanking investment managers.

Their latest campaign gimmick is a song saying, "Sorry, we went bankrupt." A bizarre choice, given their own vulnerabilities.

The biggest bankruptcy in Israel's banking establishment wasn't of a broker, it was of Bank Hapoalim, Bank Leumi and Israel Discount Bank, whose managers were convicted of criminal charges, namely, of manipulating their share prices in 1983, so massively that it resulted in bankruptcy and the Bejsky Commission.

The Bejsky Commission ruled that the banks had to be extracted from the capital market, yet its conclusions were never implemented because of the pressure of the bankers, who are now trying to torpedo the next attempt to reform.

The Knesset Finance Committee members are being inundated with requests for meetings by lobbyists on behalf of the bankers, and by the bankers themselves, who are bombing them with disinformation, taking advantage of the complexities of the situation.

It is true that the conflicts of interest in the financial establishment, and the need to create alternative sources of financing, are complex subjects that require extensive economic background. But there's one thing the Knesset members can understand perfectly well.

In a nation where 20 managers at two big banks control 60 to 70 percent of all credit extended in the whole country, and half the public's financial assets, democracy is in danger, as is the ability of the Knesset members, the politicians, the businesspeople and the press to act freely.

Don't the bankers understand that concept? Or maybe their real worry is not a potential loss of profits, but of clout, the power to terrify anybody trying to institute structural reforms for the greater good of the public.