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In early 2000, Professor David Levhari received a polite letter from the Bank of Israel, thanking him for his work on the consulting committee on banking affairs and informing him that his appointment had expired. Why did Supervisor of Banks Yitzhak Tal decide to dismiss Levhari, a renowned expert on banking, finance and micro-economics?

The consulting committee is headed by the supervisor of banks, who also in effect determines its composition. Committee members include representatives of Israel's five major banks, a representative of the smaller banks and a representative of the mortgage banks. There are also representatives of the public; however, some of them receive jobs from the banks, some enjoy their credit, and some are indifferent. Thus, although the bankers do not have a formal majority on the committee, they appear at every session and, because - given their obvious interests - they are very familiar with the material, they determine each discussion's direction.

When he was appointed to the committee, Levhari began raising issues that did not find favor in the bankers' eyes. One of those issues was the safe-keeping fee the banks charge: 0.5 percent annually of the value of the client's securities and mutual funds portfolio.

This is an unjustified bank charge that proves that the banks in Israel operate as an illegal cartel. After all, the banks have nothing really to put in safe-keeping. The securities do not physically exist. An entry is simply made in the computer and periodic reports are sent to the client. It would therefore be logical for the banks to charge an annual "administrative fee" of approximately NIS 60, regardless of the portfolio's size. Why this figure? Because in a normal country like the United States, where competition is fierce even over "small" clients, brokerage firms charge an "administrative fee" of $15 annually.

Levhari argued at the time that, in a situation where a cartel exists, the banks supervisor should intervene and establish a ceiling for the "safe-keeping fee"; otherwise, Levhari pointed out, bank customers would be robbed in an organized manner. The bankers on the committee found it hard not to burst out laughing: Why was this naive individual trying to change the laws of the universe? Nonetheless, Levhari was persistent, and it was finally decided that Shlomo Piotorkowsky, Chairman of the Board at the First International Bank of Israel, would explain to him why the banks should continue to collect a safe-keeping fee of 0.5 percent of a portfolio's value.

Nonetheless, like Cato the Elder, Levhari continued to raise the issue at every meeting and was promised each time that Piotorkowsky would soon explain everything. They met but Piotorkowsky provided no explanation. The upshot was the politely-worded letter sent in early 2000 that clarified to Levhari why it does not pay to be a troublemaker.

When Prof. Yakov Amihud, another banking and micro-economics expert, learned of this affair, he turned to then antitrust commissioner David Tadmor, telling him about the banking cartel. Tadmor easily solved the problem. He informed Amihud that this issue belonged to the supervisor of banks' area of jurisdiction: Let the banks supervisor go fight the rich and powerful. Thus, the banks are continuing to collect this scandalous "safe-keeping fee," which brings between NIS 150-200 million shekels into the banks' coffers every year.

The inflated bank charges affair began in the mid-1980s when then-banks supervisor Galia Maor appointed a committee headed by Meir Heth (a former banks supervisor). The committee recommended (naturally) that most bank charges not be subject to inspection. Maor and subsequently Amnon Goldschmidt (both of whom are employed today in the banking industry) adopted the committee's recommendations - and that's when the banks began to go to town. They fragmented their charges into separate microscopic operations and raised the number of their fees to 500(!) in order to confuse the public, which would then have no idea what it was paying or why.

In 1993, a thunderous hue and cry arose from the Israeli public, and the banks were forced to cut down the number of charges to 134. Since then, the number of charges again began to climb and is now 240. Meanwhile, Prof. Levhari is still enraged over his dismissal.