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The Supervisor of Banks, Yitzhak Tal, has responded to calls that he resign over the NIS 250 million embezzlement scandal at Trade Bank by saying he is not willing to be lynched without a trial.

"I won't accept it for two reasons," he said. "First, this affair concerns the entire banking supervision department and if I accept the blame, it means the entire department is to blame. Second, there is the personal issue - I am used to fighting and not giving in, and I'm not willing to be lynched without a trial. Let them appoint an outside investigator, have the State Comptroller examine it. I would cooperate with him, and he would decide if all are to blame, or only one."

Tal was in the Knesset on Tuesday to counter the accusations leveled against him by MKs, many of them calling for his resignation. The Bank of Israel spokesman's office has been getting constant calls from all media outlets asking if Tal had yet decided to resign. "There are public figures who have never seen my face and I suspect haven't the foggiest notion about supervision of banks. It's very easy for them to swoop down on this affair and make political capital. It's easy for the newspapers, too, to have a single address at which they can lay the blame," said Tal.

Within the banking establishment, much criticism is also being leveled at Tal. It may be that the criticism also conceal the bankers' wish to be rid of the official who supervises their institutions, due to his firmness and degree to which he mixes in their affairs. As they see it, the man who is so tough on them should also be tough on himself.

Some of the criticism relates directly to what happened at Trade Bank. But some of it evidently relates to unfortunate statements issued by the Bank of Israel, mainly by its Governor, David Klein. Since the collapse of Trade Bank, several startling statements have been issued by the central bank, which provide an indication of the extent of the pressure there. Initially, Tal and Klein declared it was not the job of the Bank of Israel to expose acts of embezzlement. Subsequently, the governor said small banks pose greater risks than big banks. On Monday, Klein was saying that a bank's customers were obliged to verify their account particulars with more than a single clerk. These statements gave many observers the feeling that the Bank of Israel was doing everything it could to shirk all responsibility for the affair.

The idea that the Supervisor of Banks will be compelled to resign raises questions about the accountability of the lower ranks in his department. The two natural candidates to replace Tal are Deputy Supervisor Yoav Lehman, and Assistant Supervisor Avi Vishnevich. If there was a lapse in the Bank of Israel's supervision and oversight of Trade Bank, then Lehman and Vishnevich are directly responsible for it.

Lehman is in charge of institutional assessment of the banks. Everything having to do with ongoing supervision of banking operations, follow-up on comptroller reports and reports issued by the banks - goes through him.

Vishnevich is in charge of the examination teams, and from his office in Tel Aviv, he dispatches the teams to the various banks. The two men are the highest-ranking bank-supervision professionals. All of the other deputies fill functions of a more administrative character.

In the large banks, these two departments (institutional assessment and examination) operate separately. But at small, independent banks, they form joint units that handle both institutional assessment and examination.

The units are subordinate to both Lehman and Vishnevich, and one of them was responsible for the supervision of Trade Bank. If Tal has to resign, so too should the natural candidates to replace him. If that were to happen, the supervision office would lose its top three men. In terms of the banking community, this would constitute nothing short of an earthquake.

Tal refuses to respond to the question of sharing the blame within the supervision department. "These are difficult hours, and the worst thing to do is to start putting the blame on my friends and the people under me. I head this system," says Tal.

One senior banker feels that Tal, Lehman and Vishnevich should all resign - along with the mid-level officials who personally handled supervision of Trade Bank. "After this sort of earthquake, the system has to be shaken up, and a supervisor should be brought in from the outside. For years, the position of supervisor went to persons who grew up in the department, and it may very well be that they adopted a common, dogmatic pattern of thinking. Someone from the outside can ask the questions they no longer ask themselves."

Tal's resignation would be seen through the prism of Trade Bank's collapse, but anyone who has watched what he has done in the past few years cannot disregard the numerous measures taken to prevent the collapse of larger and more important banks than Trade. Since his appointment, Tal has devoted much time to issues affecting the stability of the banking system. This was reflected by the restrictions placed on credit issued to individuals linked to those with controlling interest of the banks (one of the most widespread reasons in the world for the collapse of banks); preventing leveraged buy-outs of banks with credit from other banks; deciding to increase loan-loss provisions, despite the commercial banks' hopes to repeat the enormous profitability of 2000; raising the capital requirements of the banks; and most recently - Tal's recommendation not to distribute dividends.

These directives were core elements in the supervision effort, and were aimed at maintaining stability of the banks. It may be that they prevented all or some of the big banks from entering dangerous waters. This sort of danger would have had a much greater effect on the banking system and the economy than the serious lapse that brought down Trade Bank. But a senior executive at one of the big banks didn't miss the opportunity to pay back Tal for his firm supervision, saying, "He focused on hampering the progress of the large banks, all the while not noticing the huge embezzlement at a small bank right under his nose."

The harsh criticism is being focused on the supervisor of banks partly because there is no other address. Everyone else linked to Trade Bank has already lost either his job or his fortune. The senior executives of the bank, including the CEO and internal comptroller, bear direct responsibility for the lapse that enabled the embezzlement to take place. All of them are already out of a job, without many prospects of finding any other work in the near future. Directors and major shareholders also played a large part in the lapse, and in the initial stage they will have to give up their positions as well as the capital they invested in the bank. Presumably, the lawsuits are yet to come. The bank's accountants, Kesselman & Kesselman, may have been on the butt end of some criticism within their own industry, but the Trade Bank collapse will not, apparently, affect their business.

If the pressure exerted on Tal continues unabated, it is hard to see him continuing in his post for much longer. Although he believes in his own case, at some stage he may conclude that the pressure on him is adversely affecting his ability to continue running his department. In the meantime, Tal sent a message this week to anyone who thinks that supervision of banks will grow more lax as a result of his department's troubles: "I don't advise anyone to test us. No one should think that we have been weakened by the public criticism of our actions that is being voiced," Tal said at a symposium held at Tel Aviv University.