With the Good Bank – Bad Bank methodology this paper seeks to propose a just and effective solution to address the Lebanese banking crisis. The plan is essentially to separate the good part of the bank, which is salvageable, from the bad part of the bank, which is too difficult to salvage. It is a scientific methodology for bank restructuring which begins with separating the commercial banks’ activity from their investment portfolio, and treating each part separately. Merging all of these sections into one bank was the greatest sin, so to speak, that led to the sector’s collapse.
This methodology has been applied by many international banks after the “great recession” financial crisis in 2008. Following the global crisis, several euro-area countries set up asset management companies (AMCs), also known as ‘bad banks’, to address banks’ growing non-performing loans (NPLs) that were undermining financial stability. In 2009, the Irish authorities created the National Asset Management Agency (NAMA). The German Bundestag authorized the FMS Wertmanagement AöR in 2010. In Spain, the Management Company for Assets Arising from the Restructuring of the Banking Sector (Sareb) was created in 2012. These institutions were an important step in facilitating economic recovery and restructuring large and critically impaired banking institutions or the banking sectors of each respective country; a story which can be replicated to salvage and improve Lebanon’s banking sector as the country charts a recovery path from its current period of collapse.
