Lebanon advances toward banking sector restructuring

Lebanon has moved one step closer to restructuring its banking sector after the Parliamentary Finance and Budget Committee approved Articles 3 and 13 of the Banking Sector Reform Law, ending weeks of negotiations involving the government, Banque du Liban (BDL), and the International Monetary Fund (IMF). The agreement removes one of the most contentious obstacles delaying implementation of the law, which Parliament originally adopted on 31 July 2025.

While the approval represents an important legislative milestone, Lebanese economic expert Patrick Mardini cautioned in an interview with The Beiruter that it is only one component of a much broader financial recovery strategy.

Why articles 3 and 13 matter

According to Mardini, the significance of approving Articles 3 and 13 lies less in introducing entirely new restructuring mechanisms than in resolving institutional disputes that had delayed implementation of the law.

He explains that the revised provisions reflect what has been described as a consensus formula incorporating observations from both BDL and the IMF on the government’s original draft. Although it remains unclear whether every party is fully satisfied with the final wording, the agreement appears sufficient to remove the principal legislative obstacles preventing the restructuring process from moving forward.

For Mardini, banking sector restructuring is an indispensable requirement for Lebanon’s economic recovery, even if it is not, by itself, enough to resolve the country’s financial crisis.

The restructuring of the banking sector is a necessary step for Lebanon to emerge from its current crisis. It is not sufficient on its own, but it is certainly an essential prerequisite.

A central achievement of the amendments, he argues, is the clarification of decision-making authority. Earlier drafts had raised concerns about overlapping powers between BDL and the Higher Banking Commission, the body responsible for evaluating banks and overseeing restructuring or liquidation procedures. Eliminating these jurisdictional ambiguities reduces the risk of institutional paralysis during implementation.

Mardini also highlights another important objective: limiting arbitrary decision-making. By establishing objective legal criteria for restructuring, the law seeks to prevent political considerations from influencing which banks survive and which are liquidated. “This framework should prevent politically connected banks from receiving preferential treatment while financially healthier institutions are disadvantaged,” he explains.

Objective standards reduce discretionary decisions and create a fairer restructuring process.

How the government, BDL, and the IMF reached a compromise

Mardini explains that the disagreements surrounding the legislation were fundamentally institutional rather than technical. The principal dispute concerned the balance of authority between BDL and the newly empowered Higher Banking Commission.

Regarding Article 3, BDL argued that the government’s original proposal granted excessively broad powers to the Higher Banking Commission, effectively creating a parallel institution capable of operating independently from the central bank. From the IMF’s perspective, however, broader authority would facilitate a faster and more effective restructuring process consistent with international practices.

The IMF wanted a supervisory body capable of restructuring banks effectively, not an institution that exists only on paper without meaningful authority.

To resolve this disagreement, BDL insisted that the Commission’s activities remain explicitly subject to Lebanon’s Code of Money and Credit, thereby preserving the Central Council’s constitutional responsibility for safeguarding monetary stability.

Article 13 generated a similar institutional debate. The government’s original proposal appeared to authorize the Higher Banking Commission to request the issuance of regulatory circulars and restructuring standards. BDL viewed this language as placing the Commission above the central bank by allowing it to direct regulatory policy. “The central bank considered this an infringement on its statutory authority,” Mardini explains. The IMF, meanwhile, feared that limiting the Commission’s powers too severely would leave it as little more than a symbolic institution unable to supervise restructuring effectively.

The compromise ultimately reached reflects concessions from both sides. Instead of empowering the Higher Banking Commission to request regulatory circulars, the revised text limits its role to issuing recommendations. At the same time, the legislation explicitly confirms that all of the Commission’s activities remain governed by the Code of Money and Credit, preserving BDL’s legal authority while allowing the restructuring body to perform its supervisory functions. According to Mardini, this balanced approach should enable implementation of the Banking Sector Reform Law without creating institutional conflicts that could undermine the reform process.

International standards and the importance of IMF confidence

Another important dimension of the amendments is their alignment with internationally recognized banking standards.

Mardini argues that Lebanon’s prospects for reconstruction, foreign investment, and renewed international financial assistance remain closely linked to its ability to implement credible economic reforms.

In practice, the international community will consider Lebanon to have fulfilled this requirement once the IMF is satisfied with the reforms.

Compliance with internationally accepted restructuring principles therefore strengthens Lebanon’s credibility while increasing the likelihood of securing future international support.

The Banking Sector Reform Law also introduces internationally recognized resolution mechanisms intended to preserve financial stability by allowing troubled banks to be restructured, merged, recapitalized, or liquidated in an orderly manner rather than allowing isolated failures to spread throughout the banking system.

Restoring confidence requires more than one law

While Mardini considers the Banking Sector Reform Law indispensable, he highlights that it cannot, by itself, restore confidence in Lebanon’s banking system.

Every country should have legislation that allows authorities to deal with distressed banks before isolated failures turn into a systemic financial crisis.

Indeed, without such legal tools, Mardini notes that the failure of one institution can trigger panic among depositors and destabilize the entire banking sector. Nevertheless, he insists that the Banking Sector Reform Law is only one pillar of a broader recovery strategy.

The law is a necessary condition, but it is not a sufficient one.

According to Mardini, 2 additional reforms remain essential.

The first is the Financial Regularization Law, which will determine how Lebanon’s accumulated financial losses are distributed among the state, BDL, commercial banks, and other stakeholders. He describes this issue as the central political disagreement that has delayed meaningful financial reform for the past 6 years.

The second is the adoption of a Currency Board Law, which he believes would help restore monetary credibility, strengthen confidence in the Lebanese pound, and reinforce the country’s financial system over the long term.

Hence, the ultimate success of the restructuring process, and the restoration of depositor confidence, will depend on completing the remaining legislative framework, while ensuring that implementation is guided by transparency, institutional cooperation, and credible economic governance.