Bank Seizures? Not Here, Not Yet...

Israel's economic leaders are preparing for the day that the financial crisis will reach Israel and freeze lending by the banks. Nationalization a-la London isn't on the agenda, at least not yet.

The Israel Securities Authority is touting the idea of boosting the banks' capital by NIS 6 billion, which would ultimately enable them to lend up to NIS 80 billion more than they can right now. If the banks can't repay that money when the time comes, then Jerusalem would seize shares in the banks, nationalizing them.

Alternatively, the Finance Ministry proposes state guarantees for bank loans to corporate Israel, to keep the local financial system from seizing up.

At the moment, both ideas remain on paper for the day of need.

The main problem costing the economic leaders their beauty sleep is the NIS 350 billion that corporate Israel borrowed through bond issues on the stock market. More than NIS 70 billion worth has to repaid by the end of 2010. It was never the companies' intention to simply repay all that money when the bonds mature: The usual practice is to take out fresh loans to repay the old ones. But if fresh loans aren't available (whether from the market, or the banks)? Then the companies will start to default, and the banks will start to post losses.