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After the week global banking just went through, no scenario is unthinkable. Banks are in trouble throughout Europe and Iceland's all went broke. Britain is buying shares from its biggest banks for hundreds of billions of dollars, essentially part-nationalizing the sector. And Thursday the American treasury secretary hinted that the U.S. might follow in the U.K.'s footsteps. If banks in the U.S., Britain and Europe
are nationalized, can we be sure that ours won't be too?
Why did Britain's banks have to be rescued? Until mere days ago, the biggest ones were considered perfectly sound. Barclays was even shortlisted to buy Lehman Bros. What happened in the space of just days? There's no clear answer. Even Israel's bankers don't know.
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One possibility is that Britain chose an ounce of protection before the pound of cure became necessary, one Israeli banker suggests. Another possibility is political: that Gordon Brown, a former esteemed finance minister, is extremely unpopular as prime minister and is taking advantage of the crisis to get back onto familiar turf. Brown is
now starring on prime-time television, and receiving plaudits for his initiative and leadership.
Or, London and Washington know something about their banking systems that we don't know, and it's scaring them so badly that they're choosing the most extreme alternative: buy the whole system and take over its management.
The British banks' nationalization will spread to other countries. Why? Because people will figure where would they rather put their money? In Barclays, controlled by the British government, or in some private bank? A nationalized bank automatically becomes safer, and creates the threat of a run on the other banks as clients withdraw their money to deposit in the nationalized one. Hence the American swiftness to announce a possible imitation of the move.
Will banks fall in the domino effect here, too? Probably not. Israel's banking system is small. The banks know their customers intimately, and the Bank of Israel knows them all.
The local system doesn't suffer from the opacity and uncertainties of the global system. Our banks didn't bet major sums in the high-risk sectors of the international markets and the crisis of confidence hasn't made aliya. Bank Hapoalim's losses are embarrassing, but they don't threaten its survival.
Yet two scenarios could jolt the local banks. One is a run on the banks by a frightened public fearing for the banks' soundness, following new information or rumors. The second scenario is the collapse of major borrowers companies belonging to the likes of Lev Leviev, Yitzhak Tshuva or Eliezer Fishman.
Neither scenario looks likely, but neither looks impossible either, given the events of recent weeks. And if either of the scenarios come true, the leaders of the U.K., Europe and the U.S. have set out the solution before us. The government will inject capital into the banks billions of shekels in exchange for some or all of their shares.
Depositors won't suffer: They'd be officially secured by government. But shareholders in the banks will hurt. And so will the public as it pays for the takeover of the banks with its tax money.
