Lebanese Private Sector Network Feedback on the Draft Financial Gap Resolution & Deposit Recovery Law
Position Statement
The Lebanese Private Sector Network (the Network) acknowledges the government’s efforts to advance the Financial Stabilization and Deposits Repayment Act (FSDR), while maintaining important reservations regarding its current formulation.
The Network considers that any gap resolution law must first and foremost restore trust and confidence in the financial system and support sustained economic growth. Its effectiveness and legitimacy will depend on its integration within a credible and comprehensive short- to medium-term economic recovery framework—one that restores liquidity, revives productive activity, and safeguards the formal economy.
This paper assesses the draft law as approved by the Cabinet and submitted to Parliament on 29 December 2025.
Areas of Alignment
The Network recognizes several positive elements in the draft law:
· Formal acknowledgment of outstanding obligations among commercial banks, the Central Bank, and the State.
Establishment of a restructuring hierarchy for banks and depositor restitution.
Introduction of an earmarked tax on financial misconduct.
Explicit prioritization of depositor repayment within a defined framework.
General recognition of the State’s responsibility toward the Central Bank and the financial system.
Taken together, these elements represent an initial response to years of uncertainty that have fueled informality and capital flight, and they constitute necessary—though insufficient—first steps toward restoring structure to the financial system.
Core Gaps and Risks
Despite these strengths, the draft law remains incomplete and exposes material economic, legal, and institutional risks.
1. Constitutionality and legality risks
The draft law proposes an upfront haircut – intended to restore the Central Bank’s net asset position and solvency - through the retroactive reversal of interest and the recalculation of Lebanese-pound-to-U.S.-dollar conversions, prior to any depositor restitution. This approach raises serious concerns:
· Constitutional risk, particularly with respect to property rights and equality before the law, as enshrined in Article 15 of the Constitution.
Legal risk, arising from the retroactive alteration of contractual obligations between banks and depositors, undermining legal certainty and enforceability.
Credibility risk, as the aggregation of deposits across multiple banks or accounts undermines established legal, accounting, and banking principles, weaking confidence in the restructuring framework.
Moreover, addressing the Central Bank’s balance sheet primarily through depositor losses risks absolving the State of its responsibility to contribute to closing the estimated financial gap, contrary to its obligations under the Code of Money and Credit. Such an approach would severely undermine confidence among depositors, investors, and the formal private sector, and weaken prospects for restoring trust in the financial system.
2. Absence of a binding liquidity and recovery engine
The draft law treats the crisis largely as a balance-sheet and loss-allocation exercise, without embedding deposit recovery within a binding liquidity restoration and growth strategy. Without restored liquidity and revived credit:
· Businesses cannot operate, invest, or expand.
Households cannot sustain consumption.
The formal economy continues to contract, while cash and informal activity expand.
Capping effective cash-like reimbursement at USD 100,000 per depositor risks further discouraging deposits, constraining bank liquidity, and limiting the banking sector’s ability to support recovery. Multiple economic assessments have warned that, absent liquidity circulation, repayment schedules risk remaining theoretical rather than executable.
3. Depositor protection deferred rather than codified
While depositor prioritization is stated as an objective, key protections- categories, repayment mechanics, exchange treatment, and timelines - are largely deferred to future regulations.
This approach postpones confidence rather than restoring it and exposes depositors to discretionary outcomes. The proposed differentiation between smaller and larger depositors also raises concerns of unequal treatment, particularly as a significant share of larger deposits belongs to formal businesses, professional associations, and productive institutions.
4. Productive economy left unaddressed
The law does not articulate how formal enterprises are expected to operate during the implementation period. Access to working capital, trade finance, and productive credit remains undefined, reinforcing the structural disadvantage faced by compliant firms relative to the cash and grey economy.
5. State responsibility insufficiently specified
While the law references the State’s obligation toward the Central Bank, it does not quantify this responsibility nor anchor it within a binding timetable.
This lack of clarity undermines feasibility and raises concerns as to whether the Central Bank and commercial banks are expected to shoulder the burden alone - an outcome neither realistic nor sustainable.
6. Governance and feasibility gaps
The framework proceeds without published financial projections, consolidated cash-flow forecasts, or bank-by-bank viability assessments. Asset quality reviews alone are insufficient; comprehensive audits across all stakeholders are required to ensure transparency, accountability, and enforceability.
7. Earmark tax on financial misconducts
The proposed earmarked tax on net financial misconduct should be recalibrated to reflect fair taxation of realized profits and balance-sheet asset gains. If properly designed and transparently applied, such a levy could provide a credible contribution to funding the Financial Sector Debt Resolution framework and supporting recovery, without creating distortions or undermining financial sector rehabilitation.
Required Amendments and Companion Measures
For the FSDR to support recovery rather than institutionalize stagnation, the Network calls for the following:
Full system audit covering banks, the Central Bank, and the Ministry of Finance to credibly quantify the gap and funding capacity.
Full depositor protections to be explicitly codified in law, not deferred to circulars or decrees.
Removal of non-constitutional and non-legal provisions to ensure durability and enforceability.
A binding liquidity restoration and credit revival plan, with quantified targets and timelines.
Dedicated productive-sector financing mechanisms for SMEs, industry, agriculture, and exporters during the transition.
Clear, quantified, and time-bound State obligations, consistent with fiscal realism and the principles of social equity.
Professional governance and transparency safeguards for any use of public or Central Bank assets, including independent oversight and parliamentary reporting.
Sunset clauses and reporting requirements to limit discretion and ensure accountability throughout implementation.
Conclusion
The Network considers that Lebanon’s crisis is fundamentally a crisis of liquidity, confidence, and growth - not accounting alone. The FSDR can serve as a foundation for recovery only if it is paired with measures that restart the economy, protect formal activity, and rebuild trust in financial institutions.