Uploaded on
The September 2022 issue asked whether Lebanon's shift to a cash economy, after the collapse of trust in its banks, exposed the country to de-risking by the international financial system. It distinguished three forms: de-banking of individuals and firms, the loss of correspondent banking relationships that carry cross-border payments, and the withdrawal of money transfer operators, which it described as potentially devastating for a remittance-dependent population.
The authors identified the drivers as expanding AML/CFT reporting requirements, very large fines in recent enforcement cases, and higher capital and liquidity requirements introduced after the 2007–2008 crisis, which together led global banks to cut risk appetite and exit entire customer groups. Drawing on an IFC survey of emerging-market banks, they noted that rising compliance cost was the most frequently cited effect, and argued that de-risking is itself a market failure: it pushes high-risk activity towards smaller institutions and unregulated channels, curtails trade finance and deepens financial exclusion.
In Lebanon, the issue found that banks had reinforced AML/CFT units since the crisis and that remittance flows had not yet been disrupted. The threat lay in the spread of cash transactions, internal and external hawala networks, heavy cheque dealing, unregulated money exchangers and opaque exchange-rate applications associated with speculators.
Key findings
- Remittances from the diaspora held steady at US$5–7 billion a year at the time of writing, a lifeline the issue saw as most exposed to de-risking.
- Banque du Liban circular 154 of 27 August 2020 required banks to hold the equivalent of 3% of deposits with correspondent banks, though compliance could not be verified.
- Lebanese banks reported fewer active correspondent relationships as early as 2016, with importers and exporters hit hardest.
- The segments identified as most at risk were remittances, NGOs, banks still transferring fresh dollars abroad, and producers relying on trade finance.
- The issue held that once correspondent relationships are lost, governments find it very difficult to restore them, making consistent AML/CFT enforcement essential.
Archive: written in Sep 2022; figures and assessments reflect conditions at the time of writing.Summary of the paper; the full analysis is in the PDF.