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The Supervisor of Banks, Yitzhak Tal, was asked a month and a half ago at a news conference in Tel Aviv if there were any banks caught in a liquidity crisis as a result of Trade Bank's demise. Tal did not like the question and he replied, "Before Trade Bank's collapse no-one ever asked me this question. I have never responded to such issues in the past, and I don't plan to answer them in the future."

Tal may have been evasive, but his words hid the message that discussing the liquidity or stability of a particular bank is out of order. And if there is such talk, he is not prepared to fan the flames. The supervisor would prefer that stability in the banking sector be his exclusive concern and not become a matter for public debate, so as not to create the very scenarios that the public fears. What truly worries Tal in his reluctance to have the public participate in his remit over particular banks, is what is termed a "run on the banks" when masses of account-holders swoop on any particular bank and demand their money. Such a phenomenon could bring the downfall of even the most stable of banks, as no bank can supply in cash all of its deposits at the drop of a hat.

Nevertheless Trade Bank's collapse, together with the worsening economic and security situation, does provide some justification for promoting public discussion on banking stability. Possibly the words of former Bank Hapoalim chairman of the board Amiram Sivan last week, concerning the possibility of a large bank's collapse, were only the first sign of more to come.

The Banking Supervisory department carries out dozens, if not hundreds, of activities during the year to maintain stability of the banking system. But most of them do not even reach the public's eye, mainly because the Banking Supervisor has a policy not to report on what happens concerning any specific bank. That bank's clients therefore feed on snippets of information and hearsay which provide far from the full picture on what is being done to ensure the safety of their deposits, and this in itself boosts their fears of the bank's stability. These fears themselves increase the danger to the banking system, and the Bank of Israel is therefore obliged to respond to the public's concern about this.

And exactly how should they do this?

The correct activities should be carried out in two spheres: explanation, and protective steps. In terms of explanation, it is advisable that the public be informed of the banking system's state of stability, of action taken to improve this stability and other relevant facts. This would provide informed, focused debate, before panic sets in. Faith in the banking supervision body took a hard hit following the Trade Bank embezzlement scandal, and this is the time to put things right, exactly like the Bank of Israel governor has acted (successfully so far) to reestablish faith in monetary policy. In practice, providing some security for bank deposits, which the central bank has talked about for some years, should help calm fears among bank clients and give a sense of security to those who dread a slew of negative reports on the banks, and who are already choosing which bank to transfer their savings to.