Knesset Unit Defers Decision on Whether Full-scale Inquiry into Bank Scandal Should Be Undertaken

The Knesset’s Control Committee, after a heated debate today, deferred decision on whether to recommend a full-scale judicial inquiry into the conduct of Israel’s largest commercial banks.

The banks and their top executives were accused by State Comptroller Yitzhak Tunik of manipulating the price of bank shares which collapsed in October, 1983 with severe financial losses to investors and the State. Tunik, who released his report here Monday, also accused the heads of government financial institutions of failing to halt what he called “irresponsible adventurism” by the banks which was bound to end in disaster.

The Cabinet has the authority to establish a judicial committee of inquiry. Premier Shimon Peres has already named a three-man panel, consisting of two Cabinet ministers and a Knesset member to “coordinate” government-Knesset action on the Comptroller’s report.

BITTER ARGUMENTS IN KNESSET COMMITTEE

But the Knesset committee was embroiled in bitter arguments today over whether to have the inquiry set up at once or to delay it. Most Labor Party and Mapam members insisted on speedy action. Others however, thought the inquiry should wait to allow the bank officials involved to resign voluntarily, the idea being to mute if not defuse the scandal.

Attorney General Yitzhak Zamir told the committee that there appears to be evidence that senior bank officials exploited privileged information for their personal gain in the period immediately before the crash. The price of bank shares plummeted on October 6, 1983 when rumors of a sharp new devaluation of the Shekel triggered a massive sell-off by investors in order to buy Dollars.

Zamir said he was looking into this evidence and also into the questions raised by the Comptroller of possible criminal acts in the course of the manipulation. The banks are accused of deliberately buying and selling their shares to inflate the prices and induce more investors to buy.

According to the report, this practice began in the 1970’s with the result that, by the early 1980’s the price of bank shares bore no relationship to the banks’ actual assets.

URGES IMMEDIATE FULL-SCALE INQUIRY

Tunik, who was present at the committee session, urged the members to set up a full-scale inquiry at once. He was backed by Zamir who had recommended an inquiry into banking practices more than a year ago. A judicial commission would be empowered to investigate non-governmental institutions such as banks and the stock exchange which are outside the purview of the State Comptroller.

Committee members who favored delay contended that if a commission is empaneled immediately the bank executives would feel no pressure on them to “draw personal conclusions” and resign. They did not explain why a delay might cause them to “do the right thing.”

Minister of Energy and Infrastructure Moshe Shahal (Labor) demanded today that the heads of all of the banks in question resign immediately. Whether or not they were personally at fault, they are the responsible executive, he said. Shahal, along with Justice Minister Moshe Nissim (Likud-Liberal) and Labor MK David Libai, chairman of the Control Committee, comprise the coordinating committee appointed by Peres Monday night.

So far the bankers have kept mum. Acting in close coordination, they have refused public comment on the Comptrollers report.

According to some sources, if the bankers eventually appear before an inquiry commission their likely line of defense will be that they were pressed into inflating the price of bank shares by the Likud-led government, which was in office in 1983, as a means of contributing to the government’s overriding desire to create an illusion of prosperity and well being among the electorate.

It was learned, meanwhile, that dozens of investors have brought lawsuits against the banks, charging they were misled by promises of quick profits when they bought bank shares. When the crisis broke, the country’s four largest banks — Bank Leumi, Bank Hapoalim, Israel Discount Bank and United Mizrachi Bank–had run out of funds to support the prices of their shares.