BEIRUT, Lebanon — Throughout history, humans have braved great odds to perform great feats. Riad Toufic Salame, the governor of Lebanon's central bank, is not one of those people. Instead, the silver-haired banker became a hero by playing it safe.
In 2005, he defied pressure from the Lebanese business community and bucked international trends to issue what now looks like a prophetic decree: a blanket order barring any bank in his country from investing in mortgage-backed securities, which have contributed to the most dramatic collapse of financial institutions since the Great Depression.
As major banks in America and Europe were shuttered or partly nationalized and thousands of people in the U.S. financial sector were laid off, Lebanon's banks had one of their best years ever. Billions in cash continue to pour into the relative safety of Lebanese savings accounts, with comfy but not extravagant yields of 6 percent.
"Being able to survive and to do well in this crisis, I can tell you, I was proud of this achievement," Salame said.
In a country known for politicians prone to soaring oratory, Salame favors technical facts as he describes the effort of expanding Lebanon's banking sector from $7 billion in assets in the early 1990s to $91 billion in 2009.
It meant tightening regulations and banking requirements, and resisting the temptation for easy money. "We had criticism, and some were saying that Lebanon could have bigger growth in its economy if there was not such regulation for credit," Salame recalled. "We were criticized for putting too much regulation."
When the real estate boom crested this decade and investors began bundling debt into nebulous financial instruments fueled by easy credit, the pressure was on for Salame to let banks take advantage of the high yields.
Salame refused. He says the mortgage-backed securities worried him from the start. They were too complicated. They went against a major tradition in Lebanese and Middle Eastern banking: Know to whom you're giving cash and who's going to pay you back.