Lebanon’s banking collapse reveals how superficial compliance and unchecked power masked deep institutional failures, demanding urgent reform to restore public trust.

For nearly two decades, Lebanon’s banking system was cast as a regional success story—a rare pillar of stability in a volatile neighborhood. With high liquidity, robust capital adequacy, and ostensible compliance with global financial standards, Lebanese banks enjoyed a reputation for prudence and reliability. That illusion collapsed in 2019, exposing a web of regulatory neglect, governance opacity, and reckless risk exposure.

This essay revisits the façade of pre-crisis resilience to examine how a once-celebrated system crumbled and why a comprehensive reimagining of financial oversight is not only overdue but also imperative. The central aim is retrospective clarity. To understand what went wrong—and to ensure it doesn’t happen again—Lebanon must confront its failures squarely. Memory, in this context, is not nostalgia; it is a tool for reform. Only by reckoning with the systemic breakdowns that drove Lebanon to the brink can reformers chart a credible path forward.

“When they told us Lebanon’s banks were fine…” That phrase now echoes as both an elegy and an indictment. For years, Lebanese citizens took solace in the belief that their banking sector was regionally unmatched, anchored by international frameworks like the Basel Accords and resilient against political tremors. However, the 2019 crash dismantled this myth, vaporizing savings, collapsing confidence, and exposing not just technical failure but also institutional betrayal.

At the center of this unraveling stands a singular figure: Riad Salameh. For three decades, Salameh wielded an extraordinary concentration of power. As central bank governor, he simultaneously oversaw monetary policy, banking supervision, anti-money laundering enforcement, and financial system stability. This accumulation of roles was not merely unconventional—it was perilous. With no meaningful checks, Salameh’s control morphed into a system of personalized governance, where accountability was sacrificed at the altar of central authority. What Lebanon had was not oversight, but orbit—a financial system spinning around a single man’s discretion.

Between 2000 and 2018, the sector displayed what seemed to be impressive credentials: Capital adequacy ratios that regularly exceeded Basel benchmarks, at times surpassing 25%. Strong liquidity buffers, with loan-to-deposit ratios under 40%. Resilience in the face of global shocks, including the 2008 financial crisis. Regional expansion, with banks entering new markets across the MENA and West Africa regions. Finally, public commitments to Basel I and II, and steps toward Basel III.

Together, these metrics painted a portrait of institutional strength and international best practice. Global investors, depositors, and regulators placed their faith in a sector that seemed both modern and mature. The Central Bank, the Banking Control Commission, and the Association of Banks in Lebanon were credited with maintaining discipline and prudence.

Yet beneath the glossy reports, critical vulnerabilities were metastasizing.

Balance sheets, lauded for their strength, were often bolstered by inflated valuations, fictitious profits, and exposure to a central bank that was itself dangerously overleveraged. Many banks counted deposits at the BDL as capital, effectively circular accounting that masked fragility as solvency.

Worse, the second pillar of Basel—risk supervision—was functionally ignored. Risk management became a box-ticking exercise rather than a strategic priority. Banks lent recklessly to the government, chasing high yields while ignoring the escalating fiscal rot. In doing so, they tethered their fortunes to a failing state, turning depositors into de facto creditors of a bankrupt treasury.

The third pillar—transparency—was equally hollow. Disclosures were inconsistent, jargon-laden, and devoid of substance. Neither banks nor regulators provided the public with a clear picture of the underlying risks. Oversight bodies, including the Banking Control Commission and the Special Investigation Commission, were muted—rendered ineffective by political interference or institutional inertia. Regulation became performance. Supervision became theater.

When the macroeconomic storm gathered after 2016—widening deficits, dwindling capital inflows, political paralysis—the system’s superficial stability gave way. By 2019, capital controls were hastily imposed. The currency collapsed. Deposit accounts were frozen. Confidence died a public death.

What followed was not just a financial crisis, but a moral reckoning as well. The sector’s rehabilitation now requires more than technical repair. It demands radical transparency, institutional independence, and cultural change. Regulators must shed their passivity. Financial disclosures must be written for the public, not obfuscated in legalese. The Banking Control Commission must be rebuilt from scratch—its leadership insulated from political compromise, its staff appointed by merit, its mandate empowered with investigatory teeth.

Banks, too, must bear new burdens. Risk management systems must be real, dynamic, and subject to external audits. Every institution should maintain a public-facing risk framework that is subject to regular stress testing. A financially literate citizenry must become Lebanon’s first line of defense. People must understand where their money is and what risks it’s exposed to.

The greatest damage was not a matter of error. It was impunity. Impunity must be confronted through legislative inquiry, criminal accountability, and structural reform. Governance cannot be symbolic. Oversight cannot be cosmetic.

With the recent election of President Joseph Aoun and the formation of a new cabinet led by Prime Minister Nawaf Salam, Lebanon finds itself at a pivotal moment. This administration, unencumbered by the sins of its predecessors, holds a rare opportunity: to rebuild public trust and restore the credibility of financial institutions. Their success—or failure—will determine whether Lebanon’s banks become a model of recovery or remain a monument to systemic decay.

The lessons of Lebanon’s collapse extend far beyond its borders. In every emerging economy, the veneer of resilience can mask deep institutional rot. Compliance that lacks conviction, governance without grit—these are the makings of catastrophe. Financial systems are only as strong as the ethics and scrutiny that undergird them.

Lebanon’s tragedy must become its turning point. Not through promises. Through action. Through truth. Through justice.