there when they needed it. Although banks can stay open with deposit insurance guarantees, if they have a large share of nonperforming loans, they may need to allocate an increasing share of new credit to keep these loans current, potentially depriving their good clients of access to finance when they need it.

There still are, of course, a significant number of developing countries where nationallyowned or widely held banks dominate the system. Examples here would be Argentina and Lebanon.

_Argentina_ ’s banking system is an intermediate case with government, foreign banks, and local concerns, controlling roughly equal shares of the system. Famous for having introduced such regulatory innovations as a requirement for banks to issue subordinated debt to independent institutional shareholders, as well as for the dramatic collapse of the fixed exchange rate system, Argentina’s banking system has, as mentioned, previously been examined for evidence of market discipline in deposits. Data on the average interest rate paid, as well as on the market share of the largest twelve banks in Argentina does not, however, reveal either a clear pattern of higher interest rates, or a loss of deposits, by those banks reporting higher loan-delinquency experience in the months running up to the collapse of the system in 2001 (cf. Martinez-Peria and Schmukler, 2003). This tends to confirm that the collapse was a systemic one, driven largely by macroeconomic and government induced factors, rather than by deficient management of individual banks.

Essentially all of _Lebanon_ ’s banks are privately owned (though it is interesting to find that the fourth largest, Banque de la Mediterranee is owned by a holding company understood<sup>14</sup> to be owned by the current prime minister, Rafik Hariri). Despite recent consolidation the market is not concentrated and has a Herfindahl index of about 600 (indicating concentration equivalent to the market being divided among 16 equal-sized banks). Four of the six largest banks are understood to be controlled by local families. The largest foreign-controlled bank is the fifth ranked Banque-Libano Francaise, of which 51% is owned by Indosuez of France. In total, there are ten other foreign-owned banks – three of them in the top ten by assets – of which six from Arab countries. Five of the banks, including three of the five largest, have a listing on the Beirut stock exchange. Additionally three of the largest banks have issued GDRs, and these GDRs have in turn been listed in Beirut (in one case even though the bank in question does not have a primary listing there, see Box). Preference shares have also been issued and sold acrossthe-counter by four large banks and the three largest have also issued ten-year subordinated bonds denominated in US dollars and listed in London or Luxembourg. Here, then is an economy where the main channels of market discipline are open, both for domestic investors and depositors as well as an important potential role for foreign investors in the GDRs and externally listed debt of the banks. The relatively high monetization of the Lebanese economy, including sizable deposits by non-residents and temporary expatriates from Lebanon, and the high degree of deposit dollarization, which has remained around two-thirds of the total for several years, despite the fixed peg with the US dollar maintained through this period, suggests that deposit holdings are well

> 14 This and other ownership indications about Lebanese banking are drawn mainly from analyst reports by rating agency Capital Intelligence.

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