The Banking Executive Magazine - March 2021

All of this happened with no prior notice and/or an explanation to clients why it happened! In addition, not all banks applied the same con- trols; each bank acted on its own, and these measures were not guided nor mandated by the regulatory au- thorities. The enthusiasm with which banks mobilized their resources (people, call centers, social media, etc.) to introduce new products and services all collapsed during the most recent crisis. It has been a complete communication breakdown between banks and their clients. In fact, even the Association of Banks in Lebanon, the banking community’s well-en- dowed lobbyist, has been an absent actor on the banking crisis scene! c) The relationship between banks and the Central Bank. The Central Bank of Lebanon (BDL) failed to effectively supervise banks because the manner with which the sitting Governor planted the seed of this relationship and helped it grow, it presented BDL as a chaperone not a whip. It made banks live under the impression that compliance shall set them free not necessarily effective risk management! With the blessing of the Banking Control Commission, banks left it up to the regulators to size their (banks’) risks. In effect, this recent crisis showed that: • Commercial banks and the central bank of Lebanon are reflections of each other. • The activities of both are inextrica- bly intertwined, and the institu- tions undeniably share a commonality of interests. • Central bank supervision of com- mercial banks, helping to assure maintenance of standards and sound banking practices, con- tributes to the health of the industry and to the trust and confidence upon which banking depends. This quickly tumbled on that morning after the crisis ignited; a testimony of failure! Finally, the extent to which the Spe- cial Investigation Commission (SIC) was accommodating to banks on anti-money laundering (AML) issues resulted in the death of two banks so far, the Lebanese Canadian Bank in 2011, and Jammal Trust Bank in 2019. In most jurisdictions, the “undo” button on AML issues has been disabled long time ago; expect in Lebanon with the SIC culture, we can “undo” and do over again and again until we get it right, or we get caught by the US Treasury! ISSUE 147 MARCH 2021 the BANKING EXECUTIVE 37 The Conduct of Lebanese Banks Leading to the 2020 Financial Crisis