Lebanon's Financial Crisis: Where Did the Money Go?

Although people have not been able to access their deposits, the Central Bank Governor and the President of the Banking Association have repeatedly reassured people that their deposits are safe.

Why can't people access their deposits?

People have limited access to their deposits because banks have no dollar liquidity. The banks’ dollars are tied up in impaired assets, which are assets that have lost a significant amount of their value, such as deposits with Banque du Liban (BdL), as well as loans to the Lebanese government and to the private sector.

Analysis by myself and economist Andy Khalil indicates that the gap between the total amount of dollar deposits—resident and non-resident customer deposits—and dollars remaining in the system is currently between 70 and 80%.

In other words, dollar depositors, in the aggregate, are facing losses of more than 70% of their funds. This is a dynamic calculation that is likely to increase over time as BdL’s reserves are drawn down to fund imports, among other factors... more