The Tel Aviv Stock Exchange closed for eighteen days beginning October 6, 1983,[1] whilst a recovery plan was implemented and the banks were nationalized.
The bank also gave out generous loans to allow the customers to continue their investments, also profiting from the interest.
This very high leverage - called over-leverage - at the bare minimum requires a very strict risk control based on transparency.
However, because the capital changed hands multiple times between banks and their clients-investors, the actual degree of leverage was masked from involved parties as well as from government regulatory bodies.
During the years following the establishment of the State of Israel, the governments used the banks as a channel for procuring capital, and instructed them on how to invest their funds.
The Minister of the Finance, Yoram Aridor, even remarked on television that had he had the funds to do so, he would invest in the stock market.
The adjustments were based on the promise of a constant rise in the banks' stock prices, irrespective of the economic situation.
The artificial prices thus achieved created an economic bubble, where everyone involved continued to invest increasing sums of money for lesser returns.
Every new issue of bank stocks further destabilized them, since more of the capital was invested in maintaining the adjustment regime instead of profitable loans.
On October 2, the first trading day after the Sukkot holiday, the public sold more bank stocks than in the entire month of September.
On October 4, the Minister of Finance appeared on television saying, "We will not let the public dictate our moves," to say the large supplies would not bring about a devaluation or change of policy.
[citation needed] Most of all, Aridor's denial made it clear that at this point the public was dictating the government's moves.
Aridor later met with the banks' managers, who demanded the government limit the public's purchases of U.S. dollars, and allow it only for plane tickets.
They assumed that without an option to save the money themselves, due to the high inflation, the public would be forced to invest in the banks' stocks.
That night, in a meeting at Aridor's home, it was decided that the government would purchase the banks' stocks from the public, to prevent the loss of their investments.
Following the commission's conclusions, and after a long struggle, the banks' managers were dismissed, but no criminal charges were brought against them initially, due to "lack of public interest", according to the State Attorney.
In 1990 the Supreme Court decided to order a trial of the banks' managers, and the accountants who lied to the commission.
This helped ensure a stable domestic banking sector, which contributed significantly to the relative resilience of the Israeli economy in face of the late-2000s recession.