Prime Minister Ariel Sharon on Sunday ordered the cabinet secretary, Gideon Sa'ar, to poll the government ministers over the phone and turn an arrangement to shore up the collapsing
Industrial Development Bank (TASE:
) into a government resolution.
There is a difference between the original arrangement reached between the Finance Ministry, the Bank of Israel and the bank, in that the credit extended by the central bank will not take precedence in status over treasury deposits.
However, deposits by customers will take precedence over both.
Treasury sources claim that was the agreement from last week, but the Bank of Israel claims otherwise.
After the government approves the arrangement, which is meant to keep the bank operational, the central bank will immediately extend the bank a credit line. The credit line will enable Industrial Development Bank to continue paying out money to customers demanding to withdraw their deposits.
On August 26, 2002, the Bank of Israel announced as follows:
"The prime minister's office, the Finance Ministry and the Bank of Israel today decided on a series of steps regarding Industrial Development Bank.
"The main step is to sell the bank's assets and commitments to another bank. For that purpose, during a period of 4-5 months, its banking operations portfolio will undergo due diligence, after which the portfolio will be sold to one of the banks participating in the process.
"Moreover, the Bank of Israel will provide a credit framework in order to bridge liquidity needs, if required. Against this credit line, the Finance Ministry agreed that the state's deposits will be of lower status than the public's deposits at the bank and than the Bank of Israel credit, until the portfolio of banking operations is sold."
The prime minister's office, Finance Ministry and Bank of Israel today reiterated that the steps are designed to keep Industrial Development Bank operational until its operations can be sold.
Industrial Development Bank belongs to the state. Banks Hapoalim, Leumi and Discount also hold minority interests in the bank.
Industrial Development Bank chairman Ra'anan Cohen today wrote Sharon a letter, stating that foot-dragging by the Bank of Israel and Finance Ministry were responsible for creating a panic.
"The government's delay in making decisions exacerbated the bank's crisis," Cohen wrote. The scandal damaged the government's credibility, Cohen added, leading customers to pound at the bank's doors demanding their money back.
"The foot-dragging by the Bank of Israel and treasury generated a panic and we are having difficulty withstanding the pressure. We cannot afford to continue waiting.
"With each day and hour that pass, the crisis deepens and raises the cost of overcoming it," Cohen wrote. "The feeling is that we aren't managing the crisis, the crisis is managing us."
Public withdrawals from the beleaguered bank began last week and accelerated after publication of its second quarter results on Friday. The financial statements included a statement from the management that the bank could be reduced to defaulting on its commitments.
A discussion had been scheduled at the prime minister's office within a few days, but Sharon decided to bring it forward as the pace of withdrawals stepped up. Some 200 people converged at the bank this morning, demanding their money back.