Laying the foundation

It is possible to have too much of a good thing. Take Lebanon’s banking sector: with assets of nearly 400 percent of GDP, it is both the backbone of the economy and the preferred financier of state debt. But unfortunately, it also may be holding the rest of the country’s financial sector back by smothering demand for equity with cheap debt offerings, a general consequence of an outsized banking sector. Whether or not this is true in Lebanon’s case — anecdotal evidence suggests it is at least in part — the country would doubtless gain from a rebalancing of the financial sector. Larger capital markets would go hand in hand with better financing options for companies which today rely on debt, and help diversify the country’s economy away from its almost singular reliance on banking. This would be good for everyone involved, even banks. As our special report (see the