In October 1983, following a stock market crash, the Israeli government became the owner of most of the banking system in the country. The government is now getting ready to privatize the banks. It has been argued that the government must take advantage of the unique opportunity to affect, in fact to mold, the structure of the banking system. Using a simple general equilibrium model of imperfect competition between multiproduct banks, the paper evaluates two proposals which have been raised in this context. Implications for banking reforms in other countries are briefly discussed.

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