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12.10.25

The Crisis They Engineered, The Geopolitics They Weaponize

Sami Zoughaib,
Sami Atallah

Something subtle but structurally decisive is happening in Lebanon. Five years into the most devastating financial collapse in the country’s modern history, the crisis is not moving toward resolution but toward reinterpretation. It is being rewritten through language rather than reform. Political and financial actors who presided over the disaster are crafting a new narrative that shifts attention away from responsibility and reframes the collapse as a diffuse malfunction of an entire system. This rhetorical turn is visible in the public vocabulary of ministers, Banque du Liban, the Association of Banks in Lebanon, and a set of unusually forthright American envoys who now speak about Lebanon’s financial order almost entirely through the grammar of regional security and Hezbollah.

The “Systemic Crisis” and the Politics of Abstraction

At the center of this narrative lies the phrase “systemic crisis.” Finance Minister Yassine Jaber repeats it. The Minister of Economy Amer Bisat embraces it. Central bank governor Karim Souhaid uses it as his primary lens. ABL has elevated it into doctrine. The term sounds technical, even neutral, since the state, BDL, and the banks were intertwined. But politically, it functions as a solvent. Once the collapse is called systemic, the specific decisions that caused it dissolve into a generalized failure.

The banks’ reckless loading of their balance sheets, the financial engineering that drained reserves, and the capture of regulatory bodies all blur together. With culpability diluted, banks re-emerge not as institutions that must answer for their conduct but as essential partners in whatever stabilization plan comes next.

Yet the “system” that failed was not a neutral structure. It was a system the banks built and profited from. They placed roughly seven of every ten dollars into BDL instruments and sovereign debt, earning billions at extraordinary, risk-blind interest rates. No one forced them into this model. They chose it because the profits were immense and because many of their owners were embedded within the political order that depended on this arrangement. In this sense, the crisis is not “systemic” in the exonerating way officials now imply—it was engineered.

By framing the collapse as systemic, ABL shifts attention toward the state’s Eurobond default and away from the structural choices that made default inevitable. It argues that responsibility must be pooled upward, that the state should absorb the largest losses, and that banks and depositors are co-victims. Deliberate, profit-driven decisions are recast as unavoidable tragedy, preparing the ground for losses to be socialized through taxpayers and public assets rather than through shareholder wipeouts or the restructuring of insolvent banks. The crisis is being called systemic not because it is the truest description, but because it is the safest one for those who designed the system in the first place.

Recasting Cash: From Consequence to Threat

This rhetorical shift is paired with a second narrative: the elevation of Lebanon’s cash economy as both an economic distortion and a national security threat. Officials describe cash as if it were a new post-2019 mutation enabling tax evasion, illicit flows, and most importantly allowing Hezbollah to operate outside the reach of financial surveillance. The World Bank’s estimate that nearly half the country’s GDP now circulates in cash is cited as proof of unprecedented opacity.

The story is selective. Lebanon’s financial history, made clear in the Global Findex dataset, shows that the country was never meaningfully banked. Even at the height of its pre-crisis moments, account ownership remained below fifty percent. Lebanon has always been a hybrid economy: digitally connected, globally integrated, and structurally dependent on cash. Wages, rents, tuition, remittances, medical bills, and business payments routinely bypassed banks because banks served sovereign financing and patronage networks rather than financial inclusion.

What changed after 2019 was not the existence of cash but its meaning. Once banks froze deposits, rationed withdrawals, and silently confiscated savings through multiple exchange rates, people abandoned the formal system. Findex captures this collapse starkly. Account ownership drops from forty-five percent in 2017 to twenty-one percent in 2021 and barely recovers to twenty-three percent in 2024. Four out of five adults are now unbanked. This is not exclusion—it is rejection. Lebanon’s digital connectivity increased and more than ninety percent of adults used the internet in 2024, yet the public fled institutions that had betrayed them. Cash became a rational survival strategy, and money transfer firms and informal brokers became the country’s real financial infrastructure. Lebanon did not fall into cash. It sought refuge in it.

This is the context that the new narrative attempts to obscure. The banking sector was displaced by its own collapse. Deposit flight did not happen because of Hezbollah; it happened because of the banks. Now that depositors have not returned, cash threatens multiple centers of power: it complicates taxation, weakens BDL’s ability to manage liquidity, undermines IMF modeling, and limits Washington’s ability to track Hezbollah-linked flows. Cash is being recast as the cause of disorder rather than the consequence of institutional failure.

The Rebranding of BDL and the Construction of a Security-Financial Settlement

In this shifting landscape, Banque du Liban is attempting an ambitious act of self-reinvention. Governor Souhaid’s judicial audit of subsidy beneficiaries is marketed as a technocratic cleanup, yet it is essentially an attempt to position BDL as the institution that exposes corruption rather than the one that structured the subsidy and financing systems that helped drive the collapse.

More revealing is his recent meeting with ABL, described by participants as unusually positive. Souhaid secured agreement on three points that align bank interests and American expectations: defining the collapse as systemic, adopting a unified restructuring framework with Ancura that places BDL—not the Ministry of Finance—at the center, and rejecting immediate write-offs of bank capital in favor of gradual recapitalization. Souhaid is bank-aligned, and his architecture reflects this alignment.

He is also pursuing another objective: to convince the Americans that BDL is the only institution capable of fighting the cash economy, enforcing AML standards, managing monetary policy, and preserving a banking sector that Washington sees less as a development engine and more as surveillance infrastructure. The identity he is constructing is not that of a repentant technocracy but of an indispensable arbiter of a new security-financial settlement.

The United States is reinforcing this repositioning. Treasury officials, White House counterterrorism advisers, and special envoys are telling Lebanese officials that access to investment, reconstruction money, and even IMF-onward support now depends on reorganizing the financial system into an instrument that constrains Hezbollah’s financial space. This includes dismantling quasi-banking entities such as al-Qard al-Hasan, suppressing cash-heavy exchange networks that replaced formal banks, prosecuting sanctions violators, and reasserting central oversight over dollar flows. It marks a shift from sanctioning Hezbollah externally to reshaping Lebanon’s financial governance internally.

For BDL and the banks, this alignment is an opportunity. The more Lebanon’s financial system is tied to security imperatives, the more indispensable the existing banks appear. Domestically, this securitized logic has been accompanied by a coordinated campaign portraying liquidation of insolvent banks as a catastrophic national threat. Former ministers, bank economists, ABL representatives, and commentators adjacent to U.S. policy circles repeat a single message: destroying the banking sector would destroy the country. The line is designed to foreclose any discussion of wiping out shareholders, transferring viable assets into new institutions, prosecuting wrongdoing, or creating a deposit-protection agency. Many countries have restructured or liquidated banks and emerged stronger. Fear—not fact—drives this campaign.

Hezbollah itself has said almost nothing about banking reform. It is omnipresent in the debate not because it is shaping it, but because others are using it as the organizing logic. Its presence allows political and financial elites to externalize the crisis and convert a domestic financial crime into a regional security problem. It creates a ready-made justification for preserving banks: liquidation would empower Hezbollah; cash supports Hezbollah; banks must survive because the United States requires surveillance nodes. Hezbollah, which prior to the war was a partner to the banking elite in blocking reforms and guarding their status quo, has become the scapegoat for causing the financial collapse in the post-war change in the balance of powers.

Intentional Delay and the Shift from Economics to Geopolitics

Within this architecture, debates around sequencing acquire their real significance. There is much talk of progress on a financial gap law, of a national plan, of protecting small depositors. But this is not sequencing in a technocratic sense—it is intentional delay. It is a deliberate strategy to postpone the redistribution of losses because stating clearly who will pay is politically suicidal. The current technocratic ministers avoid discussing loss allocation because doing so would force them to confront the banks, the major depositors, the political class, and BDL itself. Delay becomes a political tool: it keeps responsibility abstract, buys time, and maintains the appearance of consensus.

What moves quickly are the elements that are politically feasible today: AML enforcement, cash suppression, and the construction of a counter-Hezbollah financial architecture. This security program satisfies Washington and reinforces BDL’s claim to indispensability. The result is a two-track response to the collapse: surveillance now and accountability never.

The effect is profound. Lebanon’s financial collapse is not being resolved. It is being reorganized—discursively, politically, and geopolitically. The new narrative protects incumbents, rehabilitates banks, and reframes depositor dispossession as a technical or security problem rather than a political one. What began as a financial failure has been transformed into a regional security dilemma. Domestic accountability weakens as the debate is reframed around Iran, Hezbollah, sanctions, crypto, cash opacity, and border economies. External actors impose priorities and national elites hide behind geopolitics and stability. Banks become strategic instruments rather than domestic service providers.

Lebanon’s financial collapse is not being solved. It is being rewritten. The tragedy is not only that people lost their savings. It is that they are now being encouraged to forget why. The danger is not that the crisis persists. It is that its eventual resolution will erase its origins.

 


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