The ongoing battle between Israel's central bank and the country's second-largest bank, Bank Hapoalim, has reached new heights. Bank employees are preparing to organize demonstrations in front of the central bank's offices to protest what they decry as a smear campaign directed at the bank and its directors. Bank Hapoalim's workers union issued a press release Thursday stating, "We will not sit idly by while our home is being attacked." The union expressed complete confidence in the bank and its leadership and demanded a meeting with Bank of Israel Governor Stanley Fischer to express its uncompromising position and to demand he put to an end the "witch-hunt" against the bank. The move came as a response to a harsh report issued by Banks Supervisor Rony Hizkiyahu, criticizing the board's handling of the resignation of the bank's chief executive officer, Zvi Ziv, last month. The report stated that the bank's chairman, Dan Dankner, and the board violated regulations by not following strict procedures when they hired Zion Keinan to replace Ziv. The report also directed the board to take "immediate action" toward correcting its faulty conduct. The Israel Securities Authority had ordered Bank Hapoalim to publish the central bank's full report after Hizkiyahu and Fischer met with Shari Arison, Bank Hapoalim's controlling shareholder. Bank Hapoalim's spokesman said the bank intends to conduct a thorough review of Hizkiyahu's letter, but maintains it did nothing wrong. In a press release, Bank Hapoalim's legal advisor, Ilan Mazur, said, "The board of directors' decision concerning the appointment of the new CEO is valid and was made in an appropriate and suitable manner." The bank's formal response to the report was augmented by analysis provided by three highly regarded independent experts: Prof. Lucian Bebchuk from Harvard Law School, former antitrust commissioner and prime minister Ehud Olmert's chief of staff Yoram Turbowitz, and former Bank of Israel legal counsel Varda Lusthaus. "It is common for companies, including large and important companies and ones facing substantial challenges, to fill the position of departing CEO without going through a search committee process or other time-consuming process," said Bebchuk, an expert in the area of corporate governance. "While Ziv's unplanned departure accelerated the director's decision concerning the elevation of Keinan to the CEO post, their decision to do so has likely reflected an assessment of Keinan that has evolved over a significant period." Keinan was Ziv's second in command and has been an employee of the bank for more than 30 years. The pivotal question that arises from this issue is to what extent regulators should interfere in the running and decision making of private businesses. "It's the Bank of Israel's job to regulate and oversee the banking system and make sure it isn't operating like the corner supermarket," said Prof. Dan Ben-David, director of the Taub Center for Social Policy Research in Jerusalem. "I don't think it is the role of the central bank to decide who should fill the leadership positions in the bank, nor do I think that that is their intention. But when the Bank of Israel sees that things are awry, as its governor and its supervisor of banks apparently do in the case of Bank Hapoalim, then it's not only their right to interfere, it is their obligation to do so." Pressure between the two financial bodies has been steadily building over the last few months and in the wake of the global financial crisis. The workers union's statement mentioned media reports about Fischer's desire to oust Dankner and even the possible nationalization of the bank. Last week Dankner received a vote of confidence from Arison, the bank's largest stockholder and one of Israel's wealthiest individuals. Trading in Bank Hapoalim's shares was halted for a short time pending publication of the report, but by the end of the day its share price jumped 3.4 percent.