The Role of Politics in the Failure to Address Financial Distress

Abstract

This study examines the political dynamics responsible for the banking collapse in Lebanon and the obstacles encountered in implementing an effective crisis resolution strategy. Despite a historically successful banking system, the aftermath of the October 2019 uprising triggered a banking sector downfall, exposing vulnerabilities exacerbated by political turmoil. Focusing on the role of domestic politics, this study identifies specific aspects of Lebanon's political system that both contributed to the banking collapse and impeded efforts at addressing the repercussions of the banking sector crisis. Key findings demonstrate that political resistance, polarization, clientelism, corruption, weak governance, regulatory capture, and the overlap of bankers and politicians are the main contributors to the banking crisis and impediments for its proper management.