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On September 10, 2001, the day before the terror attacks that stunned America and the world, Supervisor of the Banks Yitzhak Tal ordered Israel's banks to set aside NIS 1 billion for doubtful debts.

In retrospect, his timing was astonishing. Tal's order forced the banks to get a grip on reality and drop their baseless optimism. A prominent banker known for not mincing his words defined the impact of 9/11 on Israel's banks as "a good excuse".

Until then, he explained, everyone knew the banks did not make sufficient provisioning in the hope that they would recover. "When the World Trade Center collapsed it gave everyone excuses for their provisions. In fact they would have had to make the same provisions if the Twin Towers were still standing today."

According to another source, the fact that banks have not streamlined since 9/11 proves there was no direct impact. While the hi-tech industry fired thousands and slashed wages last year, the banks have implemented no aggressive measures that would make them more competitive and prepared for a continued recession.

It would, however, be over simplistic to say that the biggest terror attack in history was little less than an excuse. While 9/11 may have had no direct impact on Israel's banking sector, the indirect influence is painful.

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"The events of September 11 postponed economic recovery by at least one year," said Gil Bufman, Bank Leumi's chief economist. Like many other economists and bankers, Bufman recognizes the critical influence that the


and hi-tech crisis have had on the economy, but believes 9/11 had a deep perceptual impact.

In the four quarterly reports published since, Israeli banks made provisions of NIS 5.9 billion for doubtful debts compared to NIS 2.3 billion in the year before. "September 11 came after five years of recession, so large provisions for doubtful debts were hardly a surprise," a senior banker said.

September 11 also halted issues that Bank Hapoalim and Israel Discount Bank had planned on Wall Street. "The world is now not open to anything that is not rated triple-A," Bufman said.

The privatization of the two banks still controled by the government, Leumi and Israel Discount Bank, came to a standstill before September 11, but the terror attack ruled out the option of selling the controlling interest in a block, at least for now.