Opposition rises against the “Financial Gap Law”

6 years after Lebanon’s financial crisis erupted, the government is set to discuss the “Financial Gap Law” in Cabinet today, a bill designed to regulate bank deposit recoveries and stabilize the banking sector. However, the draft law has ignited intense controversy, with both depositors and banks criticizing its provisions as unfair, unclear, and potentially more damaging than the original collapse of the banking system in late 2019.

Depositors and banks voice strong objections

The law has faced criticism from the very groups it is meant to protect depositors and banks alike.

Depositors fear that the mechanism for reimbursing funds, particularly for amounts above $100,000, is convoluted and may disadvantage those who withdrew money in prior years. Banks, on the other hand, argue that they are being asked to shoulder an unrealistic portion of the repayment costs (instead of balancing it with regards to the Lebanese state). According to a banking source, while the law ostensibly assigns banks a 40% share of deposit recovery costs, in practice this could rise substantially, leaving them financially overextended.

The source explained that repaying deposits up to $100,000 could cost approximately $17 billion, with the Central Bank technically covering 60% of the total. Since this money originates from funds previously deposited by banks with the central bank, the practical effect is that banks are funding the repayment almost entirely themselves. Critics argue this arrangement is neither fair nor sustainable.

From here, depositors have reacted angrily, with protests and calls for strikes accompanying Cabinet discussions. Many accuse the government of expropriating their funds while shielding itself from accountability. Parliamentary figures and depositors’ associations have demanded revisions to ensure fairness and restore confidence in the financial system.

Complexities in asset-backed securities and certificates

For deposits exceeding $100,000, the law proposes using Asset-Backed Securities (ABS) issued by the Central Bank. While banks are to cover 20% of the cost, most repayment obligations effectively fall on them over long periods, sometimes spanning 10 to 11 years.

This timeline further strains banks, as they must recapitalize while simultaneously fulfilling repayment commitments. Banks warn that without external investment, profits generated will primarily service old liabilities, threatening the sector’s survival.

Ongoing legal ambiguities and disputes

The law leaves unresolved whether depositors who withdrew funds under earlier Central Bank circulars are eligible for the full $100,000 repayment. This ambiguity risks unequal treatment between depositors, fueling perceptions of injustice.

Additionally, banks object to clauses allowing ongoing lawsuits by depositors even after settlements are arranged, arguing that legal protections must accompany financial restructuring to safeguard the sector.

The law also imposes a 30% penalty on excessive bonuses and shareholder dividends, payable to a central fund over 5 years. Banks question the practicality of recovering these funds, particularly for bonuses already spent or accounts closed, and argue that penalties should apply only to existing assets to avoid retroactive financial burdens.

While the “Financial Gap Law” introduces mechanisms for structured deposit recovery and potential sector recapitalization, its current draft has sparked widespread concern over fairness, legal clarity, and bank solvency. The coming weeks will be critical, as lawmakers, banks, and civil society push to balance depositor rights with financial stability, hoping to prevent further erosion of trust in Lebanon’s fragile banking system.