A parliamentary committee recently released a draft proposal to restructure Lebanon’s financial industry. While many Lebanese may be feeling a sense of relief, it remains uncertain whether they will soon be able to access their bank deposits again, as they have been unable to do so for several years.
According to the committee’s findings, about 84% of depositors have less than $100,000 in their accounts. They therefore devised a formula that states that funds up to $100,000 will stay in their accounts. Anything over $100,000 will be transformed into a mysterious debt instrument associated with the government.
Therefore, there will be some relief for depositors, but it does not indicate that they will be able to take out up to $100,000 of their money. According to Article 37 of the proposed law, its execution will be halted until the financial gap bill, another law, is passed.
To put it another way, a bank is not required by the financial restructuring law to make up to $100,000 easily accessible for depositors to withdraw. It merely indicates that this is the most money the bank can owe a client.
Any funds exceeding this $100,000 cap may then be written off by the bank and converted into long-term, government-linked debt instruments, which can be risky investments that are challenging to turn into cash at a reasonable market value.
Although greedy bankers and dishonest government officials are to blame for Lebanon’s protracted financial crisis, depositors are once again bearing the consequences. Neither the banking industry nor the political establishment is being held responsible.
Notably, the banks have been engaging in illegal activity since 2019. A bank shall be delisted if it “declares itself in a state of suspension of payments,” according to Article 140 of the 1963 Code of Money and Credit law. Nevertheless, despite their inability to compensate depositors, banks have remained open in Lebanon.
The selective withdrawal of funds by certain depositors from banks is also illegal. When the crisis started, several politicians moved billions of dollars to foreign institutions. Small depositors, meanwhile, were unable to take out even a few hundred dollars to cover their daily costs. This hasn’t been thoroughly investigated.
The 2019 financial crisis in Lebanon is comparable to the 2008 Icelandic crisis. The indicators were the same in both instances: an oversized banking industry relative to GDP. The banks in both nations were motivated by greed. The two states’ approaches to handling the problem differed.
Instead of waiting six years, the Icelandic Parliament passed an emergency measure right away, giving the Financial Supervisory Authority jurisdiction over the banks and directing an inquiry to find any signs of fraud. Approximately thirty bankers were charged, found guilty, and imprisoned.
Because the top bankers in Lebanon have been able to rely on political cover, no bankers have been convicted.
Icelandic banks were either liquidated or placed under receivership, with the majority of losses falling on their shareholders. Depositors were able to recover a portion of the banks’ assets, and domestic clients received priority.
In other words, depositors were given precedence in the process. This is not the case in Lebanon, where the banks have been bailed out by their depositors.
Even though the new law is quite accommodating, banks in Lebanon are opposing it and are using the media to disparage the legislation. They refuse to take any accountability for the problem.
There is a crooked political class that protects the banks. The banking industry funded the government’s corruption. Banks financed the government by using the deposits of their clients; they enticed depositors with the promise of high interest rates and then invested their funds in central bank bonds, which was a very profitable approach with minimal risk to the banks. The government then received loans from the central bank, which were wasted due to corruption.
The banks are to blame for all of this since they failed to prioritise the needs of depositors and instead gave the government loans in order to profit quickly and easily.
The banks have made an effort to shift the burden elsewhere. They have blamed Kulluna Irada, a pressure group and civil society organisation that has advocated for financial reforms. They assert that the gang disseminated false information that caused a bank run and prevented the banks from paying back depositors. The group has been maligned by the media, which has strong ties to the banking industry.
They also spread a conspiracy theory that claimed Kulluna Irada was funded by American billionaire George Soros and the “global left.” This is unthinkable. The banks dared to accuse Soros and his Open Society Foundations, an international left-wing conspiracy, of being responsible for all of their corrupt and twisted activities, which were so clear to most onlookers. The intelligence of the Lebanese people is being insulted by this.
For the banking and the political elite, the status quo is highly convenient. But they can no longer pretend that nothing is wrong or ignore the financial crisis and the lost savings. Before unlocking billions of dollars in financial help, the International Monetary Fund had called for substantial financial changes to clean up Lebanon’s banking industry. But there won’t be any true reform as long as the financial elite is shielded by the political class.
The new restructuring law isn’t the answer; it’s on hold until a financial gap law is passed. It is an illusion of law. Failed banks can write off savings, stay in business when insolvent, and evade accountability in the absence of a financial gap law. It provides no timeframe, no assurances, and no compensation. Depositors will likely see very little of the money they have worked so hard to save, and they will continue to bail out the banks.
Rather than rebuilding faith or repaying deposits, Lebanon’s financial restructuring law just supports the impunity that defines the continuous economic crisis in the nation. Though it guarantees fund retention up to $100,000, in reality, it provides neither legal protection nor cash for depositors.
The suggested modifications are mostly parliamentary theatre, with implementation frozen and important reforms like the financial gap bill still pending unresolved. While the real offenders, corrupt politicians and complicit bankers, remain free, the weight of the crisis keeps falling on common people.
Crucially lacking from the national reckoning is the function of the central bank—especially its long-time governor, Riad Salameh, who was instrumental in allowing the financial schemes causing the crisis to be launched. The IMF has proposed changes, including capital restrictions and a central bank forensic audit, but vested interests have stopped progress. Once a lifeline for the Lebanese economy, diaspora remittances have dropped as banking system confidence withers.
Legal choices for depositors are still essentially non-existent, and there is no efficient system for recourse either locally or abroad. Rising inflation and the fall of the Lebanese pound have completely destroyed the actual worth of earnings and savings. One of the greatest pre-crises, the vast scale of Lebanon’s banking industry in relation to GDP increased the danger; still, authorities did little.
This extended crisis has wider consequences than only economic ones. Particularly among the young and educated, an emigration tsunami threatens to wipe out a generation. Lebanon runs the danger of losing civic and human as well as financial capital.
Local courts nonetheless mostly remain politically tainted or inactive in the meantime. The absence of legal deterrents lets illegal actors operate with impunity. While common people are left with frozen accounts and depreciated savings, some depositors with political ties managed to migrate their money outside. This difference undermines social cohesiveness and feeds bitterness.
Lebanon has to address the reality of its ineffective government and damaged banking system if it is to prevent total institutional and economic collapse. Rebuilding the rule of law, safeguarding depositors, and rebuilding confidence by open and fair justice will start a road map toward recovery.