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One peculiar idea that recurs is to create new banks. Already, Hassan Diab’s plan from 2020 was to establish no less than five new financial institutions.
We know for a fact that, at the time, Hezbollah put this option on the table at the last second. It is, in and of itself, a bad omen, considering the agenda of this local Wagner-like organization. Hezbollah leaders believed that their plan would bear fruit, as these five banks would be split among the country’s main political/sectarian groups, with a clear privilege for the Hezbollah-backed group – that didn’t have such leverage before.
The idea was dumped shortly thereafter, however, along with Diab and all his peers. It was simply not worthy of further consideration.
But it seems as if this concept still appeals to some, making subtle comebacks every now and then through politicians and economists, in the financial parliamentary commission and elsewhere. Here’s why this idea could be a dangerous one.
- In terms of prerogatives, neither the government nor the parliament can issue banking licenses. By law, the Central Bank (BDL) is the only body authorized to do it. Outside intervention would be harmful in any case.
- Establishing a new bank would put all others at risk, as the new institution would have to accept only fresh Dollar deposits. And given that it’s a bank with no liability and no trust issues, it will be sure to replace all other banks and put their survival – and the old deposits – at risk.
There are now an estimated 200,000 fresh accounts amounting to around two billion dollars. Such money is rare to come by for the current banks and risks being transferred to new ones.
- There is a hurdle: four years into the crisis, how can potential depositors be sure that this/these new bank(s) will not, in turn, fall into the abyss of a powerless State that did everything in its power to weaken the banking sector?
The short answer is that, no matter what, life without banks is impossible, and the option to rely on a foreign bank is only partially feasible. First, not everyone has access to a bank abroad. Second, it is difficult to initiate efficient operations with such institutions.
- A proposition has been made in all recovery plans to liquidate the banks that are deemed insolvent and/or merge them with other existing banks, an initiative that would please authors of the so-called ‘recovery plans’. But the idea in question is unrealistic as no bank would choose to add a crumbling institution to its unending list of problems to solve.
- Another alternative could be considered as an exit: issuing licenses to foreign banks or renowned and trustworthy investment bankers with a clean track record.
This should be done under four conditions: the intervening moral or physical person should buy out existing establishments instead of starting a new bank from scratch, merge them with the new institution, inject fresh capitals, and kickstart the usual banking operations. This would be a way to save banks and deposits alike.
- But who would dare take such an initiative, and where would their interests lie? Wouldn’t it be a better alternative to prosper in a “normal” country?
Indeed, the move would be a bold one, but let’s think long term. All other countries are saturated in terms of banking services. Should they invest there, they would have to work hard in order to compete with the existing establishments that have a solid knowledge of the local market and a faithful customer database. But in Lebanon, the market itself is open. A new institution with a clean slate is all a client could ask for. A promising future, in this case, would be given on a silver platter.
- But why would current bankers – who, in many cases, have been building their empire for generations – sell their institutions for cheap to a newcomer, especially if these same institutions are still solvent and only lack liquidity?
Some will certainly have difficulty selling, while others are probably fed up with this lingering situation, an enemy State, compounding losses, and a total lack of a foreseeable future. These would rather mitigate the damage, exit the market, and maybe invest elsewhere.
- There is however a prerequisite: formulating legislations to protect new banks and, especially, the existing ones that did not fit the criteria for mergers or acquisitions. Again, the goal would be to safeguard the money of old and new depositors, because past experiences have proved that the current regime is so incompetent it can generate a new crisis every day; the ways to do so are legion.
Such a legislation should include, but not be limited to, a capital control law. Regulations should also be formulated to set up a rescue plan for existing banks, reactivate loan issuance and take other necessary measures… if the intention is to avoid making a clean slate of the past, that is.
Some have once stressed the importance of being “imaginative in power”. We are not asking for so much. All we want is less absurdity in power.
