Lebanon’s interbank market, once a mechanism to balance short-term liquidity needs between financial institutions, has now become a glaring symbol of the country’s broken banking system. With daily transactions estimated at 4,000-5000 billion Lebanese lira—equivalent to $55m USD at the parallel rate of 90,000 LBP/USD—the market is functioning less as a stabilizer and more as a distress signal for a system on the verge of collapse.
A Liquidity Crunch at 100% Overnight Rates
Overnight interbank rates have reached unsustainable levels, hovering close to 100%, reflecting the severe shortage of Lebanese lira in circulation. For banks under strain, this is no longer a routine liquidity adjustment mechanism—it is a last resort. One bank revealed that it supplements liquidity by tapping into funds collected by money service businesses (MSBs) on behalf of the state, adding around $50 million overnight at a rate of 40% to his liquidity. While still exorbitant, this cost is significantly lower than the prevailing 90% overnight rate, underscoring how desperate institutions have become.
MSBs and Government Funds: A Risky Substitution
At the heart of this liquidity patch lies the misuse of government-collected money. Despite a finance ministry circular mandating the transfer of MSB-held funds to the central bank within three days, compliance has been nonexistent. Instead, banks are using these funds as short-term relief, while MSBs earn outsized returns. Effectively, taxpayers’ money is being recycled through private intermediaries, enriching MSBs—many aligned with Hezbollah and Amal—at the expense of state finances.
The Special Investigation Commission (SIC) at the central bank, tasked with monitoring illicit activity, has remained silent. Yet, the telltale signs are obvious: current accounts at certain banks swelling with MSB deposits, unusually high credited interest , and opaque flows that suggest money laundering channels are active. Enforcement would be straightforward—if there were political will.
The Social Security Fund’s Unusual Role
Another player propping up the interbank market is the National Social Security Fund (NSSF). Previously invested in treasury bonds, the fund now parks its money in bank deposits and provides overnight loans. When the NSSF re-entered the interbank market, rates dropped from an astonishing 150% to around 30%, demonstrating both the acute scarcity of lira and the desperation of banks for any available liquidity.
The Mafia Architecture Around the Central Bank
Layered on top of this dysfunction is a system of patronage and racketeering that turns monetary flows into political capital. The central bank pumps lira into the market via Selim Khalil a shadowy figure acting as an intermediary between the central bank and the market. He is associated with the Amal movement and Parliament Speaker Nabih Berri’s networks. Acting as the sole effective market maker for the lira, the central bank pays 1% commission on dollars collected from Khalil. Khalil then distributes further commissions to exchange houses (predominantly owned by the shia duo) yet again.
The cycle is self-reinforcing:
- Citizens need lira to pay taxes, so they buy it from exchange houses. (controlled by shia duo)
- They then go to the cash companies or MSB’s (allied to shia duo) to pay their taxes and deposit the money into the MSB’s account NOT the central bank or state account.
- MSBs then trap that money and lend the money back to banks in the overnight market, at high interest 40-50%, keeping the system alive.
This arrangement ensures that money flowing out of the central bank and money returning to it both generate commissions for entrenched political actors. The result is a dual enrichment scheme—a siphon on both ends of the monetary cycle for the benefit of the Shia duo. Boom they have captured the money cycle!
A Threat Beyond Economics
The implications stretch far beyond banking. By consolidating financial control in the hands of Hezbollah and Amal networks, the system transforms liquidity management into a political weapon. As long as these groups profit from both the inflow and outflow of money, calls for disarmament become hollow—political financing has already been secured through control of the money supply.
Government Paralysis and the Sustainability Question
Meanwhile, the Lebanese state has narrowed its spending almost exclusively to salaries. Infrastructure investment has halted, and unspent lira accumulates in Account 36 at the central bank, creating a liquidity drought in the broader economy. This policy may temporarily shield the lira from collapse, but it is not sustainable. Without circulation of funds into productive sectors, the banking sector’s dysfunction and the economy’s stagnation will only deepen.
Conclusion: Breaking the Cycle
Lebanon’s interbank market has become a microcosm of its financial decay—banks scrambling for survival, state institutions failing to enforce rules, and political mafias exploiting every transaction. The market’s extreme rates do not only reveal a liquidity crisis; they expose a deeper reality: the banking system is no longer serving the economy, but the entrenched political networks that have captured it. Unless this cycle is broken, elections and disarmament debates alike risk being overshadowed by a financial system weaponized for political survival.