Depositors have warned against any law that would make them bear responsibility for financial losses, arguing that the government, Central Bank and commercial banks are to blame for the crisis [Getty]
Lebanon’s parliament passed a major piece of legislation on Thursday that could finally begin restructuring the country’s broken banking sector, nearly six years after its collapse.
The law, approved earlier this week by parliament’s finance and budget committee before being sent to the general assembly, marks the first serious step by lawmakers to tackle the country’s unprecedented financial crisis, which has left millions of depositors locked out of their savings since 2019.
Lebanon’s economic meltdown, widely blamed on decades of corruption, mismanagement, and unsustainable public spending, has been deepened by the ruling elite’s resistance to meaningful banking reforms.
Politicians and bankers have long blocked efforts to overhaul the sector, fearing personal and institutional losses.
One of the main conditions set by international lenders for financial assistance has been the passage of a bank restructuring law, alongside other key legislation. In April, Lebanon amended its banking secrecy law, ending decades of financial opacity.
Washington and the International Monetary Fund are among those believed to be pushing Beirut to fast-track such reforms in order to unlock bailout funds.
The Bank Restructuring Law should establish a legal and institutional framework for dealing with insolvent or “zombie” banks – those that have no capital and are unable to operate.
The legislation will replace the existing Banking Control Commission with a new Bank Restructuring Authority, empowered to restructure, recapitalise, merge, or liquidate failing banks. The aim is to stabilise the sector and pave the way for returning funds to small and medium depositors.
Roughly 84 percent of bank accounts in Lebanon – those with balances of $100,000 or less – make up about $20 billion in trapped funds, and depositors hope the law will help recover some of their savings.
“The law is, albeit long overdue, a welcome step in the right direction,” political economy researcher Jonathon Cole told The New Arab.
“For nearly six years, depositors have borne the brunt of Lebanon’s financial collapse, brought on by the disastrous polices of kleptocrat-in-chief Riad Salameh and the greed of the commercial banks.”
Former long-time Central Bank chief Riad Salameh and other bankers are either in prison or under investigation for corruption charges.
“This law, if implemented in good faith, offers the first real opportunity for the state and banking sector to regain the trust of the public and the international community,” added Cole.
‘Not enough’
Although a major milestone, the Bank Restructuring law is not enough without another a “Financial Gap” legislation – a mechanism that would allocate losses among different parties.
The Lebanese government says financial losses in the banking sector are about $70 billion. A Financial Gap law would make the state, Central Bank, commercial banks, and possibly depositors shoulder these losses.
The law would also provide a transparent accounting framework to support depositor compensation and restructuring plans.
While the Bank Restructuring law provides legal authority to restructure or liquidate banks, it cannot be enforced until the Financial Gap law is also passed.
Finance Minister Yassine Jaber says the Financial Gap law will be studied and sent to parliament for approval within six months.
Associations lobbying for depositors’ rights have warned against attempts to burden account holders with any losses, saying only successive governments and the banks are responsible for this meltdown.
Some observers have blasted the government for putting forward the Bank Restructuring law before the Financial Gap law, saying it should have happened the other way round for effectiveness.
Lebanese economy expert and journalist Mounir Younes believes what is being discussed in parliament “is a deficient law that offers no real solutions,” but instead gives banks a lifeline.
“It flagrantly violates the principles of sound legislation and reflects a lack of political will to confront the financial crisis at its roots. A reform that does not determine the fate of financial losses or assign responsibility is reform in name only. It is nothing more than a painkiller for a cancer patient,” he wrote on X.
