Lebanon’s financial collapse did not begin in October 2019, nor with the Eurobond default. By 2017, Banque du Liban and much of the commercial banking sector were already insolvent on a balance-sheet basis. What followed was not a repair strategy, but a sequence of financial engineering operations that delayed recognition of losses, protected the banking model, and shifted rising risk onto depositors and the wider economy.

As the crisis unfolded, the banking and political nexus tightened. Banque du Liban sustained an interest-rate regime that depended on ever-growing exposure to sovereign risk. Political elites, many of them linked to banks as shareholders or partners, shielded their positions and, in key cases, secured access to capital flight. Ordinary depositors absorbed the adjustment through forced withdrawals at discounted rates, parallel exchange mechanisms, mounting fees on blocked accounts, and inflation that destroyed purchasing power and hollowed out public services.

Over time, this material transfer was matched by a narrative one. A bank-aligned discourse reframed the collapse as primarily state-caused and blurred the line between bank liabilities and public resources. It normalized the idea that society should carry the cost of the breakdown, while bank owners and decision-makers were treated as protected stakeholders rather than responsible parties.

The Gap Law is the legal expression of that shift. It does not correct the crisis. It organizes it into rules. It takes a decade of elite protection and gives it legislative form, consolidating a settlement that shields bank owners, political insiders, and central bank leadership, while transferring the burden to depositors, taxpayers, and future generations.

The five principles guiding our assessment

This position statement assesses the Gap Law against five principles that any credible recovery framework must meet:

1- Prioritizing society over balance sheets, including meaningful protection for small and medium depositors.

2- Equity in depositor treatment, based on clear rules, due process, and depositor type rather than arbitrary thresholds.

3- Accountability for financial wrongdoing, including transparency, clawbacks, and liability.

4- A healthy macro-fiscal framework, that prevents private banking losses from becoming permanent public debt.

5- Restarting economic activity and sustainable growth, through real bank restructuring and restored credit to the economy.

Principle 1: Prioritizing Society (Including Depositors)

Any Gap Law must protect society as a whole. Not just the financial system’s accounting identity, and not the nominal sanctity of deposits. In a systemic collapse, the purpose of law is to limit social damage, safeguard collective resources, and rebuild the foundations of recovery: basic services, purchasing power, and economic activity.

A society-first approach also implies a simple order. Losses must be absorbed first by those who controlled the risk and captured the upside. Private capital and bank owners come before public wealth. Depositors, especially small and middle ones, are not a residual to be compressed into long-dated promises.

Lebanon’s crisis has already imposed losses on the broad public through forced withdrawals, devaluation, fees, and inflation. Many households have effectively exited the banking system. Meanwhile, the remaining deposit stock is highly concentrated, as around 82% of society is effectively unbanked. So, when the Gap Law frames its mission as protecting deposits, the question is not rhetorical. Whose deposits is the gap law trying to protect, exactly, and at what social cost?

How the Gap Law violates this principle

Problem 1: Public wealth is being diverted to cover private banking losses

The law creates a BDL-administered fund financed by public and quasi-public resources, including revenues from metals and precious commodities, assets linked to public institutions and BDL-owned entities, and usable central bank resources. These are society’s assets; not all society members have bank accounts. They should fund recovery priorities like electricity, education, health, infrastructure, and social protection. Instead, they are pledged to close a gap produced by a private banking model and sustained by regulatory failure (see Art. 10; Art. 12(1)–(2)).

Problem 2: Society and small depositors are made to pay twice

Depositors already paid through discounted access to their savings, loss of currency value, and the collapse of public provision. The law then locks in a second haircut by limiting cash repayment to USD 100,000 over four years and pushing the rest into long-dated, low-yield instruments. It also revalues certain USD accounts converted from LBP after October 2019 at 30,000 LBP per dollar, far below market price (see Art. 7; Arts. 12–13).

What a society-first approach delivers

If rebuilt around this principle, the Gap Law would do three things: prevent a second extraction round, restore legitimacy through honest loss recognition and fair distribution, and protect recovery by keeping public resources available for services and productive investment.

Principle 2: Equity in Depositor Treatment

Any Gap Law must treat depositors fairly. Equity does not mean all deposits are the same. It means similar cases are treated similarly, different cases are treated differently for clear reasons, and the rules are transparent, reviewable, and applied equally. Equity also means distinguishing between private wealth and social savings. Some deposits represent pensions, health coverage, and collective welfare. They cannot be treated like discretionary wealth.

The crisis produced unequal outcomes because access was unequal. Some were trapped and paid through forced withdrawals and devaluation. Others received preferential treatment, moved funds, or benefited from insider advantages. Equity is therefore the core test of whether the law corrects injustice or confirms it.

How the Gap Law violates this principle

Problem 1: It formalizes unequal outcomes by ignoring losses already imposed

The law claims to protect deposits below USD 100,000 but calculates protection only on remaining balances. Depositors who already absorbed losses through forced withdrawals, devaluation, or fees are treated as if those losses never occurred. This locks in inequality created by informal crisis management and rewards those who retained access while penalizing those who did not (see Art. 7).

Problem 2: It replaces evidence-based equity with arbitrary rules and stigma

Depositor treatment is determined by crude thresholds and dates rather than by depositor type, purpose of funds, or documented abuse. The stigmatization of “post–17 October 2019” deposits substitute assumption for proof, while vague exclusion categories (illicit, non-eligible, excessive interest) lack clear standards, due process, or effective appeal mechanisms (see Arts. 2, 5).

Problem 3: It exposes social savings to losses designed for private wealth

Collective and social savings—such as NSSF, pension funds, syndicates, cooperatives, and municipalities—are treated as ordinary deposits. This subjects pensions, health coverage, and social protection funds to the same loss logic as discretionary private wealth, transferring financial collapse directly into collective welfare losses.

What an equity-based approach delivers

If rebuilt around this principle, Gap Law would do three things: correct unequal treatment created during the crisis, replace arbitrary rules with clear and reviewable standards, and ensure that protection is based on people’s real circumstances rather than crude thresholds or dates.

Principle 3: Accountability for Financial Wrongdoing

Any Gap Law must be built on accountability. This collapse resulted from decisions taken by identifiable institutions and actors over years. A law that distributes losses without establishing responsibility legalizes impunity. Accountability means uncovering how losses were created, who benefited, who abused power or information, and who violated their duties. Without accountability, the law becomes a settlement. It asks society to accept sacrifices while leaving the causes, beneficiaries, and violations in the dark. That undermines trust and makes repetition likely.

How the Gap Law violates this principle

Problem 1: It distributes losses without establishing facts or responsibility

The law contains no binding requirement for full forensic audits of Banque du Liban or commercial banks. Financial engineering operations, insider lending, political exposure, and loss accumulation remain unexamined. Without establishing how losses were created and who benefited, the law institutionalizes opacity and impunity.

Problem 2: It weakly addresses crisis-era abuse while legalizing protection

Capital flight, preferential transfers, and loan-repayment arbitrage are addressed through limited and disconnected levies that bear little relation to the scale of gains. At the same time, depositor interest is retroactively adjusted, while bank profits, dividends, bonuses, and executive compensation face no comparable scrutiny.

Problem 3: It embeds conflicts of interest into crisis governance

Bank-linked actors retain influence over bodies that determine valuations, eligibility, and depositor treatment. Accountability mechanisms cannot function where decision-makers are structurally conflicted, undermining both credibility and enforcement.

What an accountability-based approach delivers

If rebuilt around this principle, the Gap Law would do three things: establish the facts of how the collapse occurred, impose real consequences on those who abused power or information, and restore public trust by showing that losses are not being socialized while responsibility remains private.

Principle 4: A Healthy Macro-Fiscal Framework

Any Gap Law must fit within a sustainable macro-fiscal framework. Stabilizing banks by destabilizing the state is not recovery. It relocates the crisis from bank balance sheets to public finances. A healthy framework means public debt is manageable, fiscal choices are explicit, and public resources are directed toward recovery and development, not permanent crisis management. Lebanon cannot rebuild if the law creates open-ended public obligations without a realistic macro path. When fiscal space collapses, services collapse. That is how financial losses become social losses.

How the Gap Law violates this principle

Problem 1: The law shifts private banking losses onto the state without resolving sovereign debt

The law proceeds without meaningful restructuring of Eurobonds or domestic debt, delaying adjustment and undermining fiscal sustainability. By mobilizing public assets and central bank resources in the absence of a debt strategy, it effectively converts private banking losses into state obligations, relocating the crisis from bank balance sheets to public finances.

Problem 2: The law creates open-ended fiscal exposure without a macro-fiscal framework

The law provides no macro-fiscal roadmap and no published projections for growth, inflation, employment, debt, or the external position. Parliament is asked to approve a long-term settlement without clarity on its fiscal consequences, embedding uncertainty and weakening the state’s capacity to plan, fund services, or support recovery.

What a macro-fiscally sound approach delivers

If rebuilt around this principle, the Gap Law would do three things: align financial resolution with the state’s real fiscal capacity, prevent banking losses from becoming permanent public liabilities, and preserve the state’s ability to fund services and invest in recovery over the long term.

Principle 5: Restarting Economic Activity and Achieving Sustainable Growth

Any Gap Law must help restart economic activity and support sustainable growth. A framework that preserves dead institutions, traps savings in illiquid instruments, and delays credit to the real economy deepens stagnation. Recovery requires a smaller, healthier banking sector that serves households, workers, and productive firms. Without functioning credit and credible banking, Lebanon stays stuck in informality and low investment. Balance-sheet fixes that delay restructuring do not restore growth.

How the Gap Law violates this principle

Problem 1: The law preserves non-viable banks and delays resolution

Although the law mandates asset quality reviews and evaluations, it allows up to five years for recapitalization without requiring forensic audits or the prompt resolution of non-viable banks. This preserves weak and insolvent institutions while postponing consolidation and exit, delaying sector restructuring, freezing credit to the real economy, and prolonging economic stagnation. Recovery cannot begin while non-viable institutions are protected from resolution and lending remains constrained (see Art. 4).

Problem 2: Illiquid instruments undermine confidence

The use of long-dated, low-yield certificates undermines confidence and liquidity, delaying consumption and investment. By trapping savings in illiquid instruments while credit remains constrained, the law locks the economy into a low-growth equilibrium marked by weak demand and persistent financial disintermediation (see Arts. 12–14).

What a growth-oriented approach delivers

If rebuild around this principle, Gap Law would do three things: resolve non-viable banks instead of preserving them, restore confidence and liquidity to households and firms, and rebuild a smaller but functional banking system that supports productive activity, jobs, and sustainable growth.

What must change:

To align the Gap Law with the five principles above, the following changes are required:

1. Protect society and public resources

- Establish a binding floor for spending on electricity, public education, public health, and social protection before allocating resources to gap financing.

- Restrict the use of gold, public land, SOEs, and future revenues to exceptional, time-limited cases approved by Parliament, and only where such use does not undermine funding for essential public services.

2. Protect depositors fairly and transparently

- Guarantee fast, liquid recovery for small and medium deposits, with priority for wage, severance, health, education, and SME operating accounts.

- Treat social savings, including NSSF, pension funds, syndicates, cooperatives, and municipalities, as a protected category.

- Replace arbitrary thresholds and date-based stigma with depositor-type differentiation and case-based assessment under judicial oversight.

3. Enforce accountability and recover private gains

- Mandate full forensic audits of Banque du Liban and all commercial banks, with public reporting.

- Claw back preferential transfers, insider payouts, excessive bonuses, dividends, and impose meaningful recovery obligations on post-crisis capital flight and arbitrage gains.

- Establish civil and criminal liability for executives, board members, regulators, and officials who breached their duties.

4. Restore macro-fiscal sustainability

- Launch a credible restructuring of sovereign debt.

- Prohibit the conversion of banking losses into long-term public liabilities, except under narrowly defined and time-limited circumstances that demonstrably protect fiscal solvency and essential public services, and that cannot be achieved through private-sector loss absorption.

5. Restart economic activity and rebuild the banking system

- Conduct bank-by-bank asset quality reviews and valuations.

- Resolve non-viable banks through restructuring, merger, or liquidation.

- Shorten recapitalization timelines and condition recapitalization on ownership and management change, with mandatory resumption of real-economy lending.