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The massive fraud at Trade Bank proves that tiny banks have no right to exist, and in Israel we have a few such minnows. The fact that they do continue to exist raises some serious question marks over the work of the Supervisor of Banks.

The problem with really small banks is their level of business risk. When the equity of a bank is only a few million shekels, its shock absorption attributes shrivel. If one major customer flies into trouble and crashes, he can take the whole bank down with him. And when it comes to embezzlement, small banks have trouble running effective internal controls because they can have one banking activity needing to be split between several clerks.

Personal ties between the staff in a small outfit makes orderly internal reviews difficult and facilitates fraud. Add to that the antiquated computing system at Trade Bank that could not give clients a quick statement of their balance of accounts or details of their latest transactions.

Someone like Etty Alon was the only staffer who could inform customers of their balance - making embezzlement even easier.

It is difficult to understand how the internal comptroller, Lina Dubovsky, could find no hint of such enormous fraud, since her job was to check the validity of balances by asking customers directly if they could confirm the balance.

The same goes for the chair of the bank's internal audit board, accountant Tova Hillman, whose job was to oversee the internal comptroller and to check her work. And did Doron Grupper, chairman of the board's investment committee, ever check the incredibly bloated credit figures?

One must wonder too about the work of the bank's accountants Kesselman and Kesselman.

But it is even more completely unclear what on earth the bank CEO Moshe Liebowitz was doing. How could a bank under his command grant vast extra credit to 200 or 300 people he didn't know, never talked to, never gently inquired how they were going to use all that nice money.

Didn't chairman of the board Shmil Webber ever wonder about the vast credit taken on by completely unknown business people and going straight into deposit accounts? Perhaps he was too busy clamoring for a more attractive options package.

The staff at the Supervisor of Banks office also clearly failed. They needed to check more than the managers, the documents, and whether everything was neatly copied and dutifully filed. This is not the way to do a proper audit, it's not the way to uncover fraud. Even last Wednesday when they arrived at the bank to investigate, they had no inkling of anything amiss. Only the next day, when Etty Alon broke down (for personal reasons) and turned herself over to the police, was the whole affair revealed.

The last time a Banking Supervisor paid for a fraud scandal with his job was in 1974, when a bank collapsed and the supervisor at the time, Meir Chet, resigned over the embezzlement. Now there's an old custom that maybe needs reviving.