Estimates: Bank of Israel will announce deposit insurance for Trade Bank

Bank of Israel is about to announce retroactive deposit insurance for customers with deposits at Trade Bank (TASE: COBK ). The move would mean that clients of the collapsed bank would receive their money back from the state pursuant to certain checks. The state would then act to recoup the cash from the bank, its directors and the perpetrators of the fraud.

Trade Bank closed Friday morning due to revelations of massive embezzlement in which NIS 250 million of customers money disappeared. The bank¿s shareholders equity is just NIS 50 million, making the bank insolvent and unable to return customers¿ money. There was no trade in the bank¿s shares on the Tel Aviv Stock Exchange today and a number of customers have already filed lawsuits.

Similar insurance was granted after the collapse of North American Bank, also after the discovery of a NIS 500 million embezzlement. Despite the fact that customers had not been indemnified in advance, the state, through Bank of Israel, eventually paid back all the money to deposit holders. The state then filed suit against the bank, its managers and directors, and even managed over the years to recoup a significant portion of the funds.

The Trade Bank embezzlement caused sharp drops on the Tel Aviv Stock Exchange today and a leap in the shekel-dollar exchange rate, which hit a high in options trading of NIS 4.96. In the past few hours it has become clear that the entire banking system has encountered liquidity problems, which led Bank of Israel to the unusual step of raising the credit lines it grants retail banks by billions of shekels. A Bank of Israel spokesman explained "It is possible one or another bank has encountered liquidity problems. Other steps will be taken as needed to increase liquidity in the banking system."