Yes, that Beirut! When you think of Lebanon, your first thought is probably related to a history of war, civil unrest and political instability. So you might be surprised to learn that the country has not only dodged the global financial crisis, it's actually thriving in the midst of it.



The country's past turmoil is directly related to Lebanon's need to create a conservative economic system—since the next crisis was expected at any moment they had to be prepared for the worst.

We know that hindsight is 20/20 and we admit that the U.S. has not suffered through the same kinds of instability that lead to Lebanon's conservative economic approach. But since the U.S. banking system seems poised to take its last breath before succumbing to nationalization, let's imagine there is such a thing as reincarnation for banks. If that were the case, maybe there is something to be learned from Lebanon that banks can apply in their next lifetime.

In 1999 Lebanon's Central Bank changed the rules to discourage commercial banks from investing in risky overseas investments. It was a way to get local banks to funnel the excess liquidity of the banking sector into their own economy.

As recently as 2007, Lebanon was teetering on the brink of all out civil war. Because it was a risky political environment and because there was growing concern about the global economy, chief banker Riad Salameh made a very fortuitous decision. He barred the banks from investing in anything complicated or that included toxic subprime loans. Risky packages bundled up with debt were strictly off limits.

Basically, the bottom line mandate was this: "Do not invest in products you don't understand or that are not transparent." What a concept! It was an order that helped shield Lebanon's banks from the global financial collapse.

The banks followed orders and scaled back on debt while at least 30% of their assets were held as cash. Salameh even forced weak banks to merge with bigger ones if it appeared that they were heading for trouble. In other words, unlike the U.S. banking system, somebody with vision was manning the helm. While the rest of the world's banking system slowly unraveled, Lebanon was prepared.

Today their Central bank treasury vaults are chockfull and in 2008 the banks posted $10.5 billion in deposits, a record high and the best year in Lebanon's financial history. Banks are also enjoying huge profits with average increases of 30 percent from 2007. Profits at Bank of Beirut had a 51 percent over 2007.

A big chunk of these record deposits and profits are a result of the thousands of highly educated young people from Lebanon who have gone to work abroad and are now sending their money home because investing elsewhere has become too risky. With some 12 million Lebanese overseas and only 3.5 million still in the country, deposits from expatriates make up a third of the economy.

But if those overseas workers, wherever they are, get caught up in other unraveling economies with mounting unemployment statistics, maybe those hefty wire transfers home will start to dwindle. We'll keep our eye on that.

Meanwhile, Lebanon's Banker Magazine awarded Salameh the 2008 prize of best Central Bank Governor in the Middle East for his excellent financial and monetary performance. Salameh's trophy case is filling up—he also received the best Central Bank Governor in the World Award in 2006 and, for three consecutive years, received the best Central Bank Governor in the Middle East Award from Euromoney magazine.

That's pretty impressive, but I don't plan on holding my breath while waiting for Paulson, or even the head of Citigroup or Bank of America, to receive that kind of recognition.