After the Revelations: Proposed Amendments to Lebanon's Banking Laws

Following the discrepancies unveiled by the forensic audit report of the accounting assets at the Central Bank of Lebanon, Caretaker Prime Minister Najib Mikati, is working on introducing amendments to the monetary and credit law established in 1964. What shortcomings did the forensic audit reveal, and what amendments are being proposed for the law?

Mikati chaired a meeting yesterday for the committee tasked with formulating suggestions for amending the monetary and credit law at the Grand Serail. 
The meeting was attended by Caretaker Minister of Justice Henry Khoury, Caretaker Minister of Finance Youssef Khalil, former ministers Ibrahim Najjar and Chakib Qortbawi, Dr. Nasri Diab, and experts Abdel Hafiz Mansour, Hassan Saleh, and Ghassan Ayyash.

 

Khoury announced after the meeting that “the committee discussed proposals for new ideas to amend the monetary and credit law. The essential aspects of the law will remain untouched, but there are some points that could undergo cosmetic amendments."

In the context, sources that participated in the meeting revealed to "Al-Joumhouria" newspaper that the session at the Grand Serail was preparatory, and it is expected that the committee will begin its serious work starting next Monday. 

The sources described the atmosphere of the meeting as responsible and excellent. They added, "It is still too early to announce the proposed amendments to the monetary and credit law, but it can be said that there is consensus within the committee and satisfaction in taking such a step." They reassured that the committee is working conscientiously for the benefit of the public interest.

Amendments to the Law

In a related context, sources following the matter stated to "Al-Joumhouria" newspaper that "the amendments to the monetary and credit law stem from what has been revealed about how the former governor of the Central Bank of Lebanon, Riad Salameh, monopolized power to himself. 

He disregarded both the Central Council and others, endangering the entire Lebanese financial system. Based on this, there is a need to establish controls on the governor's actions.

In response to a question about the concern that these controls might paralyze the Central Council's operations and lead it to be lost in favor of political and sectarian wrangling and favoritism, as is happening in other vital public institutions, the sources said "this unfortunate reality exists at present. If the Shiite bloc is obstructing, everything stops. If the Sunnite bloc is upset, everything freezes... This is evidence that the political influence on the central bank is very significant." 

The sources added that “all political forces surrendered their authority to the former governor, Riad Salameh. When they wanted to rein in his actions, political desires prevented them from doing so."

Regarding the intent of making amendments to the monetary and credit law related to accounting assets, the sources stated, "Undoubtedly, there have been many discrepancies in the Central Bank's accounts. The governor has acted according to his own discretion, for example, recording losses as assets and then converting those losses into profits due to currency issuance. He issued currency to cover the losses... In effect, he manipulated the figures as he wished. Therefore, we believe it is necessary to strengthen the accounting aspect to restrict the governor's freedom to act in this manner." 

The sources also reminded that "Governor Salameh had always said that auditing central banks differs from auditing commercial banks."

The sources expected that the committee tasked with formulating suggestions for amending the monetary and credit law, which met yesterday at the Grand Serail to discuss governance at the Central Bank of Lebanon, will establish principles for proper accounting. 

It will also work on correcting the relationship between the governor of the Central Bank and the subsequent institutions that are not sound. For example, is it permissible for the bank's supervisory committee to be directly under the governor himself? Is it reasonable for the governor to head the special investigation committee? Likewise, he leads the highest banking authority and the central council of the Central Bank of Lebanon. 

The sources likened the governor's position and authority to a large fleet consisting of a single ship. If this ship is hit, the entire fleet sinks. Therefore, it is necessary to dismantle this structure, which has caused the country to fall into catastrophe.

The sources saw that there are amendments that cannot be compromised, the most important of which is the independence of the bank's supervisory committee. For example, if this committee were independent, it would have prevented the Central Bank's decision requiring banks to deposit 70% of their assets with it. Had we not reached the crisis we are in today.