"Akhbar al-Yawm" agency

Reforming Circulars 158 and 166: A Test for Governor Karim Souaid’s Vision

Moving beyond the "one-size-fits-all" model...

Adapted and translated by "Akhbar al-Yawm" agency, from an original Arabic article by Brigadier General (Ret.) Daniel Al-Haddad

It appears that newly appointed Governor of the Banque du Liban (BDL), Karim Souaid, has completed a comprehensive assessment of Lebanon’s entrenched financial and economic crisis, which began in late 2019. He now seems to be shaping a preliminary strategy to rehabilitate the banking sector and gradually address the issue of restricted deposits through a phased and structured framework.

Although broader reform will ultimately require legislative backing, immediate attention must be given to the significant shortcomings in Central Bank Circulars No. 158 and No. 166, both legacy instruments from the tenure of former Governor Riad Salameh. These circulars contain fundamental policy flaws, particularly in how they impose flat withdrawal limits across all depositors, regardless of deposit size or client profile.

Under these circulars, a depositor with USD 10 million is permitted to withdraw only USD 500 per month under Circular 158, and an additional USD 250 under Circular 166. The same limits applied to someone with a USD 5,000 deposit. Such a uniform approach contradicts basic principles of fairness and proportionality, and sends a damaging signal to high-net-worth individuals (HNWIs) and institutional investors whose confidence is critical to the recovery of Lebanon’s financial sector.

From a macroeconomic perspective, this "one-size-fits-all" model discourages capital retention and future inflows, undermines investor trust, and creates distortionary incentives. If Lebanon is to reestablish itself as a viable destination for investment and restore confidence in its banking system, it must replace regressive liquidity management practices with more calibrated, equitable mechanisms.

Fortunately, resolving this imbalance does not require complex restructuring. Two viable policy alternatives can be implemented relatively quickly:

1. Tiered Withdrawal Model: This system would link monthly withdrawal limits to the size of each depositor’s account. For instance, accounts below USD 100,000 could retain the current USD 500 ceiling, while larger accounts would be eligible for proportionally higher withdrawals, within a predefined range, e.g., USD 500 to USD 3,000. 

2. Proportional Withdrawal Mechanism: Alternatively, depositors could be allowed to withdraw a fixed annual percentage of their total deposits, e.g., 6% to 7%, subject to a minimum and maximum monthly cap (e.g., USD 500–3,000). 

In sum, the adoption of either mechanism would provide a more equitable and rational approach to deposit recovery. Although neither option offers absolute fairness, both represent a significant improvement over the existing flat-rate policy and would help reintroduce a sense of justice and transparency into the financial recovery process.

The ultimate test now lies in the hands of Governor Souaid, who is widely recognized for his deep expertise in law, finance, and public policy. More importantly, he appears to be operating in a context that affords greater independence from the political interference and populist pressures that constrained his predecessor.