B.L. (fictitious name) is immensely proud of the tree he grew in his back yard. Twenty years after he planted the seed, nurtured the fragile seedling, fertilized it and generally relaxed in its spreading shade his tree has reached truly gigantic proportions. It has grown so big and high that, in fact, its collapse could devastate the whole neighborhood.

If B.L. had been a regular Joe, he'd prune the thing. But if he were, say, a bank - he'd get the legislature to pass a law enabling him to keep it intact, despite the peril to his neighbors.

Israel's commercial banks, Ma'ariv's Yehuda Sharoni revealed yesterday, recently launched a new initiative: to relax the restrictions on their investment in non-banking corporations.

The law limits the banks to 20% holdings in such entities. That ceiling was imposed on the recommendation of a committee headed by former treasury director-general David Brodet.

Another amendment to the banking law states that a bank may invest in only one "conglomerate". The definition of a conglomerate is: a corporation engaged in at least four areas, with equity of more than NIS 1.6 billion. In other words: a bank may not invest in two bodies that answer that description.

Bank Leumi (TASE:LUMI) is about to run headlong into that barrier.

The first conglomerate in question is Israel Corporation (TASE:ILCO). Bank Leumi owns 20% of its shares. The second is Migdal Insurance (TASE:MGDL), in which the bank also owns a 20% stake. Migdal's shareholders equity is NIS 1.9 billion, and after the adjustments stipulated in the law - its shareholders equity is fast approaching NIS 1.6 billion.

Meaning: Soon enough, Leumi may find itself breaking the law by having holdings in two, count'em, two conglomerates. If Migdal nets another NIS 40 million, Bank Leumi can officially be called a miscreant and in the five quarters from January 2001, Migdal has netted an average of NIS 93 million per quarter.

Those are the facts behind the banks' latest initiative. Today it's Bank Leumi that has the problem, but tomorrow it could happen to the others, which they well know. And anyway, if they can get the restrictions relaxed - why not?

While Leumi's stress is understandable, why should the legislature accede? The limitation is not new. Bank Leumi had five years since its enactment to work things out. Instead of lobbying at the ninetieth minute for amendments to law, enabling it to keep its tree intact, it should have pruned the burgeoning plant - handed out dividends or sold its holdings in one of its conglomerates.

Instead of doing what the law tells it to do, Bank Leumi is rolling the ball back to parliament.

That is worrisome because the person helping the banks to promote their scheme is Weizman Shiri (Labor), a man with a penchant for overly original initiatives smacking of budgetary rashness. Among other things, he has a history of supporting so-called "private bills" that serve narrow constituencies at the expense of the general public.

Another worrisome element is that the banks have hordes of lobbyists at their beck and call, from experts to lawyers to actual MKs. They already showed their clout during the Knesset debates on separating the banking and provident fund industries, on credit, and on other occasions too.

Yet another cause for concern is that there's nobody girding loins to fight them. Allowing the banks to take over Israel's giant non-banking corporations will simply increase their already overbearing clout in the domestic economy. While the damage will spread far and wide among individuals and companies, but there is zero chance of the victims' pouring the kind of money the banks have into fighting the menace.

Cases like this, where there is a public interest in a goal but no chance of organizing to achieve it, are called "public product". One example is law enforcement services. Another is mosquito extermination. The solution for the provision of public products, is for the government to provide them.

Therefore, it is up to the government to withstand the tremendous pressure of the banks and MKs, and exterminate this initiative before it takes wings and bites the public.

What chance of that happening? What chance, with our members of government tearing each other to pieces over security and economic issues? What chance, less than a year before elections? What chance, after a certain prominent member of government left politics and swanned off to chair one of Israel's banks say, R.C. (fictitious name)?

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