The Lebanon Banking Crisis: Where Should I Send My Money Now?

Lebanon’s highly successful diaspora has for years directed significant portions of their wealth back to Lebanese banks.

These remittance payments pumped an average amount of 6 Billion USD each year into Lebanese banks between 1997 and 2011. These inflows of capital had for decades kept Lebanese banks afloat and allowed for their assets to grow alarmingly. Eventually, the assets of  the banks grew 5 times as large as the country’s GDP.

Lebanon’s banking crisis

Lebanon’s banking crisis stems from a multitude of factors which can be traced back to their post-civil-war rebuilding model. Whilst this model for years brought an air of stability to Lebanon through a currency peg and high-levels of borrowing, longer-term, this plan has proven to be ineffective. Lebanon’s failed economic model, along with their poorly regulated banking sector, has left Lebanon in economic tatters and their diaspora feeling understandably distraught.

Banks have imposed strict withdrawal restrictions on depositors due to a wide-spread cash shortage. These measures have in some cases led to protests in bank branches by depositors, attempting to gain access to what little cash they can withdraw from their accounts.

What lessons can we take?

Much of the issues associated with Lebanon’s banking crisis can be traced back to the lack of investor protection offered by Lebanese banks. In the USA, Federal Deposit Insurance Corporation insures deposits in member banks up to US$250,000 per ownership category. In Lebanon – depository protection was closer to $3,000.

Depositors around the world should investigate deposit protection closely, especially in poorly regulated jurisdictions.

What does this mean for investors?

The Lebanese diaspora now has two main financial issues. The first is how to recover the money which has been deposited into Lebanese banks. Some of whom have now imposed maximum cash withdrawals of $200 per week. The second issue is where they should now direct their overseas earnings to achieve security.

Over the last few years, we have seen banking crises in developed nations such as the UK, Iceland, Belgium and Spain. These crises have redefined how we view the security of bank deposits. With banks also offering disappointing interest rates often below 1%, investors looking to combat the effects of inflation (3%), must use different structures in order to maintain and grow the value of their wealth.

 

At deVere, our highly qualified independent financial advisors have a wealth of knowledge at their disposal to help your money grow. Moreover, deVere clients have access to products and accounts held in the most secure financial jurisdictions on the planet. We strive to provide every investor with peace of mind over their money.

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