Lebanon’s $8 billion financial gap dispute has become a central battle over who owns the funds, how losses should be distributed, and whether Banque du Liban or the banks should bear responsibility for returning depositors’ money.
The $8 billion gap: Who pays the price?
Amid the ongoing debate over how to distribute the losses of the financial collapse and return deposits to their owners, the figure of $8 billion emerges as one of the most sensitive numbers in the financial gap equation, given the controversy surrounding it: To whose share should it be counted? And who bears responsibility for repaying this amount?
A recent study by global consulting firm Ankura showed that Banque du Liban’s mandatory reserves, amounting to around $10.75 billion and considered part of Banque du Liban’s share under the Financial Gap Law, would increase the banks’ share from 28% to 44%. The banks’ contribution to repaying deposits, which amount to $82 billion before adjustments, would be divided between 40% in cash for small depositors up to $100,000 and for medium and large accounts. Another 20% would be repaid for deposits exceeding $100,000 through financial certificates backed by assets known as ABS (Asset-Backed Securities).
Accordingly, the share that banks would have to repay in cash to depositors with accounts below $100,000 over a four-year period would amount to $9.2 billion. Their share would then reach around $7.4 billion during the years when deposits are repaid through financial bonds over a period of five to 20 years, bringing the total amount banks would pay to around $16.6 billion, equivalent to 43.4% of $60 billion.
A dispute over who carries the losses
Therefore, the battle over the $8 billion does not appear to be merely a numerical dispute over a clause in the Financial Gap Law draft. At its core, it is a dispute over determining how losses should be distributed among the concerned parties. Counting these funds as part of Banque du Liban’s share reduces the burden of providing funds on the central bank and makes the task more difficult for banks, which find themselves unable to meet their obligations. The opposite is also true: if the amount is counted as part of the banks’ share, it reduces the burden on banks while weakening Banque du Liban’s ability to meet its obligations. Assigning these funds to banks would place them in a position where they are unable to secure the liquidity required to repay deposits.
Ultimately, the fate of this amount remains linked to the distribution of responsibilities according to repayment capacity, while relying on achieving a balanced formula that does not simply transfer losses from one side to another but actually guarantees the recovery of depositors’ rights. The problem is not only determining where the $8 billion should be recorded on paper, but answering the more important question: Who owns this money today, and who has the ability to return it to its owners?
The question of ownership
In the Financial Gap Law draft, the $8 billion from mandatory reserves was included as part of Banque du Liban’s contribution. However, ownership of these funds and the way they are calculated in the distribution of losses remain a fundamental point of dispute, because these placements simultaneously represent an obligation by Banque du Liban toward banks, while banks owe these funds to depositors.
This is where the importance of breaking down this figure lies, not only to understand its size, but also to determine who has the right to it and which party will bear its cost under the Financial Gap Law.
Banks reject responsibility for the amount
Banks consider that around $8 billion in mandatory reserves are originally obligations owed by Banque du Liban to banks, and these are themselves obligations owed by banks to their customers. Therefore, they demand that these funds not be counted as an independent contribution from Banque du Liban at their expense.
Amid this ongoing debate, economic adviser and president of the Lebanese Economic Association Munir Rached told Nidaa Al Watan that “these funds actually belong to depositors, because banks placed them with Banque du Liban using depositors’ money, whether those called reserves, amounting to around $8 billion, or those amounting to around $70 billion, meaning a total of around $78 or $80 billion. These are fundamentally depositors’ funds.”
He added that “Banque du Liban acknowledges that the total amount placed by banks with it is approximately $80 billion, between certificates of deposit and what it calls ‘reserves’, while they are actually placements and not reserves. Therefore, all these funds belong to depositors.”
How mandatory reserves became the center of the debate
The funds held in Banque du Liban’s reserves are therefore banks’ placements with Banque du Liban. The former governor used to ask banks to carry out what are called “placements,” because they are not reserves in the legal sense. The Code of Money and Credit imposes mandatory reserves on Lebanese pound deposits held by banks, but it does not grant Banque du Liban the authority to impose mandatory reserves on dollar deposits. However, Banque du Liban did not have sufficient dollars, and therefore requested that banks make placements with it.
Therefore, when discussing the financial gap, it is necessary to determine the amount of funds that Banque du Liban will return to depositors and over what period of time. Banque du Liban is currently using these funds to repay accounts according to Circulars 158 and 166.
