Interest rates have reached high levels. Is there a risk for deposits in banks?

The question of determining interest rates in an economy is a complex task in terms of calculating conditions and data that allow the interest to go up or down. But the identification of benefits in advanced industrial economies is limited by a very narrow margin. There are currently two models in the industrialized countries, one represented by the Federal Reserve Bank and the other by the European Central Bank (ECB). Both institutions work in a narrow margin to increase or decrease interest by a quarter or a half point at most, depending on levels of inflation, unemployment and growth …

On the other hand, the model of less developed economies offers a different perspective: a wide margin of adjustment of interest rates depending on the financial and economic situation, as well as monetary policy. But what is certain are two things:

First, the increase or reduction of interest is not a decision made by any central bank in the world, but a fait accompli that central banks have to face in order to face serious crises that could turn into disasters if their effects are not mitigated by interest rates.

Secondly, any dramatic increase in interest rates effectively reflects the country's high risk ratio. This includes the risks for bank deposits, arising from the sovereign risk of the state, which is forced to raise interest rates to levels that paralyze the economic movement.

Looking at the list of countries experiencing rising interest rates, it is clear from the 2018 statistics that the interest rate criterion practically means the level of risk on deposits and the level of confidence in that country.

For example, we provide examples of interest rates in the countries of the region. Turkey (24%), Iran (18%), Egypt (16.75%).

In Lebanon, in relation to the current financial and economic situation, the interest rate is still acceptable, excluding funds from financial institutions, which have nothing to do with the interest rate in general, which explains the publication of the statement of the Association of Banks in Lebanon. Financial engineering with a specific task (save more time) on market interest rates. Thus, it is not necessary for political voices to rise from time to time to demand a reduction in interest rates because existing prices are actually lower than they are. should be, at the scale of the overall financial situation. This means that the risk ratio on deposits is not important: the depositor is always willing to inject more money into the Lebanese banking system, even with high interest rates, which is a positive sign of the conclusion that rescue is always available and that deposits are safe and there is no reason to fear losing them.

In addition, past experiences in the Lebanese market have shown that deposits are protected and protected. Several lawsuits have been held in bank failures or forced sales, but no depositor has lost a penny of his deposit. The Bank of Lebanon was responsible for ensuring the smooth flow of deposit transfers from one bank to another in order to fully guarantee the rights of depositors. Thus, this policy was followed by the deputy central governor instead of the weak deposit guarantee corporation, created in 1991 to protect small deposits in bankruptcy. A mixed institution financed by the banking sector and the Lebanese State. This institution guarantees deposits up to 5 million lire.

But bank failures must be distinguished from the global financial crisis, which has implications for the state's finances and banks. In this case, doubts remain as to the nature of the work of the deposit guarantee institution in a given country. In any case, the problem of the Deposit Deposit Corporation in Lebanon, which aims to rebadure young depositors and continues to attract deposits, remained low and needed to be raised to new levels reflecting the value of small and medium deposits , Lebanese with about $ 25,000.

In comparison, the Federal Deposit Insurance Corporation, founded in 1933, secured bank deposits of up to $ 250,000. While the deposit guarantee institution in the European Union has set the guaranteed deposit limit at around $ 85,000. Thus, if we talk about the law and what happens if the bankruptcy occurs, the legal institutions can not necessarily guarantee that the depositors do not lose their deposits.

In conclusion, the structure of existing interests in Lebanon and the new financial initiatives led by Lebanese banks prove that the level of trust of the depositor in Lebanese banks is still good. It should be noted that the owners of these types of deposits are more familiar with the country's financial situation and the real risks that surround them. When they decide that they can transfer money to Lebanon and freeze it for three years at a rate of interest of 14%, it simply means that the situation is still acceptable and that deposits are very secure in the short and medium term.