Lebanon has suffered no collapse in the banking sector, credit markets did not dry up and the country is enjoying healthy economic growth. Why?
The international financial crisis was largely caused by deleveraging after the lack of regulation allowed banks to achieve very high levels of leverage against their own equity. In Lebanon, on the other hand, we had linked the off-balance-sheet assets to the on-balance-sheet assets but ensured that the off-balance-sheet assets were related to the actual solvency of the banks.
All structured products had to be approved by the central bank, and we also limited the banks’ appetite for investing in them. We ruled that no more than 5% of a commercial bank’s equity could be invested in structured products. Moreover, since August 2004 we have forbidden banks from making sub-prime investments, both domestically and overseas. We also added a liquidity requirement, which stipulated that 30% of a bank’s deposits had to be kept in absolute liquidity and could not be used for lending.
