The Bank of Israel today returned fire after being harshly criticized over the affair of

Industrial Development Bank (TASE:

INDD.GG

), which is being saved by the state from total collapse.

Speaking at a meeting of the Knesset's Finance Committee today, Supervisor of Banks Yitzhak Tal rebutted criticism voiced yesterday by Prime Minister Ariel Sharon that the central bank behaved irresponsibly.

"This isn't the time to assign blame," Tal told the committee members, who were also harshly critical of the central bank's role in the affair. "Everything should be done to save the depositors. More could have been done to prevent the fall of the bank and not necessarily by the (central bank's) supervisory department."

People always look to assign blame to the supervisory department, Tal continued, without looking at other factors too.

The committee members also slammed the bank's chairman, Ra'anan Cohen, who had been in the seat for under two weeks.

After the committee debate, its members Avshalom Vilan and Nahum Langental noted that Cohen had been a political appointee, and not the first, at Industrial Development Bank. "The bank was managed like in the fourth or fifth world," they said.

The committee members accused the Bank of Israel of falling asleep on the job. "It was its duty to diagnose its bad condition," they said.

Cohen commented that only he, as an ex-politician, could have recruited the government's help so fast, and nipped the crisis before it could get worse and spread to the entire banking establishment.

Industrial Development Bank found itself teetering on the edge of insolvency as an earnings warning for the second quarter, followed by its second-quarter statement helped spark a run on the bank.

Customers lined up in the hundreds to withdraw money despite government assurances that the state-run bank would be backed by national resources. But squabbling between the Finance Ministry and Bank of Israel over the lifeline for the bank delayed implementation while the withdrawals continued. On Monday the central bank extended the promised credit, but meanwhile the bank's overdraft at the central bank has reached a billion shekels.