The Only Man Standing

Fischer's unique status - as an academic, as a former top official at the International Monetary Fund, as a banker and as a foreigner - makes him immune to the local pressure cooker.

Late one night, Stanley Fischer got a phone call. Several, in fact, to his house, from lawyers and influential parties trying to dissuade him from ousting Bank Hapoalim chairman Danny Dankner.

Fischer was staggered. He's been through many a titanic battle in his time, but nowhere else in the world did Influential People call the governor of the central bank at home and urge him to change his mind.

"Suddenly Fischer understood how the system of pressure among Israel's business elite works," relates a friend of the Bank of Israel chief. Suddenly he realized how the big economic decisions are made in Israel.

During an interview a month later, still reeling from his discovery, Fischer read a paragraph from an international study explaining how powerful families gain control of entire economies, and the inherent dangers.

Israel weathered the global crisis well. No banks fell, and now we seem to be among the first to recover. To whom do we owe thanks? Not to prime ministers Ehud Olmert or Benjamin Netanyahu, who were preoccupied with political survival. Not to finance ministers Abraham Hirchson, who was led away in handcuffs, or Roni Bar-On, who was new on the job but, to his credit, backed his officials.

The only economic figure of stature functioning during the crisis, the only one at the helm, was Stanley Fischer.

Fischer's unique status - as an academic, as a former top official at the International Monetary Fund, as a banker and as a foreigner - makes him immune to the local pressure cooker. He can stand firm against the politicians, the tycoons and the newspapers they control. His peers are the people who convened at Jackson Hole, Wyoming, in late August: central bankers and finance ministers, not the rich and beautiful who came to Idan Ofer's wedding.

All the big economic decisions in 2008 and 2009 were made by Fischer, more or less alone. He decided to slash interest rates to just 0.5% in April. He announced that the state would stand by all the banks, not letting any fall, come what may, thereby preventing bank runs.

He decided to completely reinvent policy and intervene in the forex market, soaking up more than $23 billion. He stopped buying dollars after a year, in August 2009.

In the first half of 2009, Fischer decided that the Bank of Israel should buy hundreds of millions of dollars in government bonds every day. Seeing the move wasn't achieving its aim, he stopped. He pushed through a new Bank of Israel law, which many a previous governor had tried to do and failed. Fischer also attends international economic summits.

In short, Fischer lends credibility to Israel's economic leadership, in the eyes of both credit rating agencies and other governments.

Some of Fischer's moves worked, some didn't, and some remain under discussion. Certainly they gained him much criticism. Bottom-crawling interest rates brought investors back to the capital market, but also inflated property prices, shares and corporate bonds. The upshot of the massive dollar purchases remains to be seen. Vastly increasing the money supply may send inflation spiraling skyward.

But one thing is irrefutable. Fischer stood at the center of Israel's economy over the last year. As the political echelon seized up and the business sector hunkered down licking its wounds, he was miles above anyone else, a fact recognized from wall to wall.

The shape of governance

Yet his main move this year wasn't in the field of monetary policy at all.

In March, Bank Hapoalim chairman Danny Dankner announced that CEO Zvi Ziv was leaving, to be replaced by Dankner's crony, corporate banking chief Zion Kenan.

That did it. For some time the Bank of Israel had been collecting information about serious problems in Bank Hapoalim's corporate governance. Fischer was especially troubled by Dankner's involvement in certain loans, reported personal involvements and ostensible conflicts of interest. One case, extensively covered by TheMarker, involved Hapoalim's investment in RP Capital, which did a lot of business with Dankner family members.

The announcement of Kenan's appointment broke the camel's back. Fischer and supervisor of banks Rony Hizkiyahu demanded Bank Hapoalim explain how it reached its decisions. The affair ended in a demand unprecedented in Israeli annals - that the bank chairman leave.

The banks supervisor is empowered to replace bank leaders. Several were fired in the U.S., Britain and France as the crisis unfolded, without public debate or trials. The regulators showed them the door, and they left. Fischer followed the usual procedure: He met privately with Hapoalim owner Shari Arison, and asked her to replace Dankner. And that should have been that.

It wasn't. Under pressure from Dankner, Arison bucked and told her battery of lawyers to fight the ouster. Instead of accepting Fischer's authority, Dankner and Arison tried to spin and threaten their way out of the problem. Arison even complained to the state comptroller. Suddenly certain business papers were reporting "problems" at the Bank of Israel and claiming that Hizkiyahu had a personal beef with certain Hapoalim personalities. Columnists were called to the flag and wrote about the central bank's "unreasonableness," demanding "to know all the reasons."

Even Hapoalim's workers were recruited, demonstrating rather feebly outside Fischer's office.

From a pinpoint pimple relating to the problematic conduct of a handful of managers at one bank, a weeping wound developed. The fight over Dankner turned into a battle over the shape of governance in Israel.

If Arison, Dankner and their cronies had broken Fischer, the strongest and most independent personality in the economic scene, nothing could have stopped them. Regulators? Nah. The Knesset? Tee-hee. The courts? Nonsense.

If Dankner had stayed, the message would have been brayed loud and clear: If you have enough money and lawyers, and influence over the press, you are above the law. But Fischer won. Dankner, who had almost a quarter-trillion shekels of the people's money under his management, had to quit. Unsuitable directors left too. It was a knock-out.

Kenan did wind up as CEO of Hapoalim, against Fischer's better judgment, but Israel's tycoons learned their lesson. Stanley Fischer and Rony Hizkiyahu are watching. Israel's banks will be more careful now, and will religiously adhere to proper procedure.

There are battles Fischer has left unfought. He didn't criticize unwise government decisions about the budget. There are crucial reforms he could lead, including some proposed by the Finance Ministry that politicians managed to kill. He could do otherwise: He is officially the economic adviser to the government. He stopped the shekel and the tycoons, but has left the government in peace. Whether he remains the strongest figure in the economy this year, too, depends on the prime minister. But Netanyahu is busy with political battling and for the nonce, Israel needs Fischer.