Final steps before banking reform approval

It is true that the Finance and Budget Committee resolved, during its session held last week, the outstanding dispute over Articles 3 and 13 of the Law on the Reform and Reorganization of Banks, which concern the powers and independence of the central bank. However, the amendments to the law requested by the International Monetary Fund (IMF) also include revisions to 28 other articles that have yet to be approved.

The articles on which the IMF requested certain amendments are not considered controversial and are therefore expected to be approved. These changes are merely clarifications that do not affect the substance of the law. One issue remains under discussion, however. According to a parliamentary source familiar with the matter who spoke to Nidaa Al Watan, it concerns the composition of the second chamber of the Higher Banking Commission. An economic expert has been added to its membership, and the matter will be discussed during the session. Some MPs believe that including such expert is unnecessary.

This issue will be the main focus of the Finance and Budget Committee meeting, scheduled for 11:00 a.m. today under the chairmanship of MP Ibrahim Kanaan and attended by committee members and MPs. As stated in Wednesday's notice, the committee will continue examining the draft law submitted under Decree No. 3056, which seeks to amend certain provisions of Law No. 23, the Law on the Reform and Reorganization of Banks in Lebanon.

Opinions differ regarding the appointment of an economic expert to the second chamber of the Higher Banking Commission. Some argue that the expert would be selected from the Economic Bodies, whose membership includes bankers, a prospect they consider undesirable. Others contend that Banque du Liban already has a strong presence within the Commission and that, since banks are directly concerned by the law, their representation on the Higher Banking Commission should not be ruled out.

What is the higher banking commission?

The Higher Banking Commission is established pursuant Article 5 of the Law on the Reform and Reorganization of Banks, which provides that a body known as the "Higher Banking Commission" shall be established within Banque du Liban and shall consist of two chambers. The first chamber, which is not subject to dispute, exercises the powers assigned to the Higher Banking Commission under Law No. 28/1967 and the applicable legislation. Law No. 28/1967 is considered one of Lebanon's most important banking laws, as it amended certain provisions of the Code of Money and Credit and established the Higher Banking Commission, the Banking Control Commission, and the National Deposit Guarantee Institution within Banque du Liban.

The second chamber serves as the authority responsible for making decisions regarding banks that must undergo resolution or liquidation in accordance with the applicable laws. It is entrusted with the restructuring powers and responsibilities set out in this law. It is composed of the Governor of Banque du Liban as Chair; the First Vice-Governor; a financial and economic expert with at least ten years of experience in mergers and bank restructuring, appointed by decree of the Council of Ministers upon the proposal of the Minister of Finance and selected from a shortlist prepared by the Economic Bodies; a judge with no less than ten years of experience in financial and commercial matters, appointed by decree of the Council of Ministers upon the proposal of the Minister of Finance and selected from a shortlist prepared by the Supreme Judicial Council; a representative of the National Deposit Guarantee Institution, provided that the representative is a member of its Board of Directors who does not represent commercial banks; and the Director General of Finance, in his capacity as a member of the Central Council of Banque du Liban, exercising his duties in accordance with Article 28 of the Code of Money and Credit.

IMF approval

The IMF's position on Article 3, to which Article 70 of the Code of Money and Credit has been added, remains pending. The IMF has opposed this provision from the outset. Nevertheless, the Finance and Budget Committee did not comply with the Fund's position, instead backing the government's decision to include it and reaffirming its approval during last week's session in order to preserve the independence of Banque du Liban and uphold the provisions of the Code of Money and Credit.

For reference, the amended article now reads as follows:

"The purpose of this law is to strengthen the stability and resilience of the banking and financial system. The Higher Banking Commission shall be responsible for resolving and liquidating distressed banks and shall exercise the powers conferred upon it under this law, including those related to ensuring the continuity of essential banking services, protecting deposits during resolution and liquidation proceedings, and limiting the use of public funds in resolving distressed banks. The responsibility for maintaining monetary and financial stability and ensuring the soundness and resilience of the banking system shall remain vested in the Central Council of Banque du Liban pursuant to Article 70 of the Code of Money and Credit."

Article 70 of the Code of Money and Credit defines the general functions of Banque du Liban as follows: "to safeguard the Lebanese currency, maintain economic stability, ensure the soundness of the banking system, and promote the development of the monetary and financial markets."

If the Finance and Budget Committee completes today the approval of the remaining agreed amendments and settles the issue of the second chamber, the committees will have concluded their assigned work. The amended draft law will then be referred to Parliament for inclusion on the agenda of the next legislative session and, ultimately, for enactment.

It should be noted that this law governing the organization and restructuring of banks will not be enforceable until the draft Financial Regularization and Deposit Recovery Law is enacted. That draft is currently being reconsidered by a government committee, as the version submitted by the government to the Finance and Budget Committee was deemed impracticable. Under that version, depositors would not recover their deposits despite the law's stated objective.