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Don't underestimate the banks' managements. Doubt not their cunning and vigor. The banks are among Israel's wiliest business institutions, and they're laughing all the way to Jerusalem.

They gaily trample any government official who tries to rein them in. Just yesterday we saw a stellar example, when Bank Hapoalim advised investors that it had signed a term sheet to sell 25 percent of its credit card subsidiary Isracard to The Israel Phoenix Assurance Company.

Not so: The sheet had been signed with Phoenix's parent company, Phoenix Holdings, and that's where the bank's wiliness comes into play.

A holding company is not an insurance company. Therefore, the transaction does not require the permission of the insurance commissioner.

Insurance companies may not own banks and vice versa, but Phoenix Holdings is not an insurance company, and Isracard is not a bank. It is a subsidiary of one, Bank Hapoalim. But apparently the transaction doesn't need the permission of the Bank of Israel's supervisor of banks, either.

In other words, the two people who directly supervise banks and insurance in Israel have been neutralized. They can't touch the deal.

The only one left is the antitrust commissioner, whose powers are limited in the case of just 25 percent changing hands.

Nobody can so much as peep a feeble boo, though it's clear that the proposed transaction, and Bank Leumi's thought of selling 20 percent of Leumi Card to Migdal - the union of banking and insurance in the credit card companies - utterly contravene the spirit of the Bachar reform. The proposed transactions run counter to government efforts to bring competition into the realm of consumer credit.

Really, there is none. Only one insurance company, Harel, has announced intentions of competing with the banks in consumer credit. Harel said it was thinking of issuing a credit card of its own, which would be the first credit card in Israel not controlled by the banks. Elsewhere in the world, banks are one thing and credit card companies are another, and they compete with the banks over terms of credit for the public. Harel thought to do that in Israel, for the good of the public and itself.

Silly Harel. It thought it would take advantage of the huge client base it received when it bought provident and mutual funds from the banks. Harel figured it would offer pension plans, mutual funds and credit to those clients as well as those of its own insurance business.

It probably won't, though. Harel knows how dependent it is on the banks, which advise their customers regarding investments and pensions. The bank advisers rule whether customers pick mutual or pension funds run by Harel, or by other companies.

The advisers at the banks are required to base their advice solely on the greater good of the client. But if the adviser knows that by suggesting a Harel investment vehicle, the bank may be losing a credit card customer, the adviser will most likely find a way not to suggest a Harel investment vehicle.

Thus, in two deals, all the achievements in the vast capital market reform have been neutralized. One is the principle of objective advice on investments and pensions: advice must be based on the client's good, not the bank's, but these two deals may kill that principle.

Also doomed is any possibility of real competition over consumer credit by the insurance companies. The banks are neutralizing any chance of competition in one of their most lucrative areas, and there is nothing the watchdogs can do. As we said, the banks are laughing all the way to Jerusalem.

Bank Leumi commented that the law today allows banks to own up to 10 percent of an insurance company. Since there have been no suspicions that banks would be biased toward a specific insurance company in such a case, then having an insurance company own a stake in a credit card company should not change that.