The LA Times had a piece yesterday on Lebanon’s thriving banking system. Riad Toufic Salame, the central bank’s governor, imposed very tight regulations on Lebanese banks during his tenure, and made it illegal for the banks to invest in mortgage-backed securities. Staying away from those investments has made Lebanon a safe investment – a pleasant change from its international image as a war zone/playground.
Interestingly, though the article initially explains Salame’s decision to regulate banks as an effort to curb the trend toward money laundering and overloose regulations in his country, he later describes his caution as a part of his Arab and Middle Eastern heritage:
When the real estate boom crested this decade and investors began bundling debt into nebulous financial instruments fueled by easy credit, the pressure was on for Salame to let banks take advantage of the high yields.
But Salame steadfastly refused.
He says the mortgage-backed securities worried him from the start. He watched curiously as investment bankers engaged in what he calls “rituals” to please the credit ratings agencies and got back such safe assessments of their products. He didn’t get it. Why were these considered safe investments? They were just too complicated. They went against a major tradition in Lebanese and Middle Eastern banking: Know to whom you’re fronting cash and who’s going to pay you back.
There may be some truth to that statement, but I think it’s interesting that an initiative that was part of an anti money laundering regime is being framed as a return to Lebanese and Middle Eastern banking traditions. Also, the idea that knowing to whom you are fronting cash is a traditionally Middle Eastern idea suggests that lending money to nameless and faceless creditors about whom you know nothing is a long standing tradition in non-Middle Eastern banking, which isn’t the case. Fascinating how financial troubles are reformulated within the frame of a narrative about modernity vs. tradition.