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The expected resignation of the supervisor of banks, Yitzhak Tal, leaves Bank of Israel Governor David Klein facing a dilemma: Does he appoint a replacement for Tal from within the ranks of the central bank, or does he look outside?

The dilemma exists because of the extraordinary circumstances of Tal's resignation. He was indeed slated to complete his term in office around this time; but the twilight of his term has been darkened by the fact that the state comptroller is reviewing the functioning of the banking supervision mechanism following the collapse of Trade Bank and Industrial Development Bank.

These circumstances shed a different light on Tal's resignation, which no longer appears as a routine change-of-guard at the top of the system for banking supervision.

Klein's dilemma does not boil down only to whether or not to replace a supervisor, but also whether or not to change the entire supervision method. In this context, the appointment of a replacement from among Tal's deputies in the office of the supervisor of banks would constitute a continuation of the present policy.

If he indeed chooses this course of action, Klein will be preserving a long-standing organizational tradition, but will be missing an opportunity to breathe fresh life into the system and instill a new worldview into its activities.

The key question with regard to the appointment of the next supervisor of banks is what will the aforementioned state comptroller's report say. If the comptroller casts a shadow on the work of the supervisor's office, it will be impossible to appoint his replacement from within the ranks of the Bank of Israel.

Tal does indeed bear ministerial responsibility for the work of the office, and he cannot be absolved of his responsibility for any failures - if such are revealed - concerning supervisory work that allowed for the collapse of Trade Bank and Industrial Development Bank.

In the same breath, however, one must say any conclusion drawn with regard to Tal's capabilities must also apply to two of his deputies who are being touted as his possible replacements - Yoav Lehman, who serves today as the supervisor's deputy, and Avi Vishnevich, who is in charge of auditing issues in the Banking Supervision Department.

Each, in their respective capacities, was directly responsible for supervising Trade Bank, and, therefore, it would be impossible not to apply the same conclusions drawn vis-a-vis Tal to his relevant deputies.

If the comptroller's report does not reveal failures in the supervision activities regarding the two banks, Klein will have free rein to appoint a new supervisor from among the ranks of the Banking Supervision Department.

A review of the work of the supervision department in recent years reveals impressive activity, as seen in a line of instructions and directives aimed at bolstering the stability of the banking system.

Such was the case when the supervisor upped the capital demand of the banks, imposed a limit on the drawing of dividends, issued an instruction regarding increasing provisions for doubtful debt and, most recently, imposed a restriction on the banks with regard to providing credit for control-acquisition deals.

Nevertheless, among the instructions issued by Tal, there is a clear string of directives resulting from failures and mishaps revealed in the workings of the banks.

If one examines Tal's performance in terms of learning lessons, he is worthy of a very high grade.

However, if the test lies in reading the writing on the wall, identifying weak spots and providing a timely response to them, his grade is much lower.

Would a different supervisor have done better?

It's difficult to say. What is clear is that during Tal's term of office, it emerged that even active supervision - abundant in directives and instructions, bans and restrictions - is unable to prevent the collapse of banks.

This fact alone justifies rethinking the desired supervisory structure in an age of an economy in an ever-deepening crisis.