Banks at a Critical Crossroads

After nearly seven years since the onset of the financial and banking crisis in autumn 2019, Lebanon enters a critical phase in attempting to rebuild a banking sector that has lost much of its traditional function, as Lebanese deposits remain stuck, credit is limited, and trust between banks, depositors, and the state is at its lowest levels. At the heart of this phase stands the Law on Bank Reform and Restructuring, representing an effort to establish legal rules for dealing with troubled banks, identifying which ones can continue operating and which require recapitalization, merger, or even liquidation.

But discussing the law after seven years of waiting requires precision. Law No. 23 was issued on August 14, 2025, before being challenged before the Constitutional Council, then returned to the legislative track through a draft amendment to several of its provisions. During July 2026, the Finance and Budget Committee continued reviewing these amendments alongside the draft Financial Order and Deposit Recovery Law. It is precisely here that the full picture emerges: Lebanon does not need one single law, but rather an interconnected system of reforms that defines the fate of banks, how to address the fiscal gap, how to distribute losses, and the realistic path toward deposit recovery.

Bank restructuring is not merely about rescuing banks as they were, nor a mechanical formula to return depositors’ funds. Its core purpose is to distinguish viable institutions from those unable to survive, determine their capital needs, and rebuild a sector capable in the future of fulfilling its natural role in safeguarding savings, financing individuals and institutions, and supporting investment.

The most sensitive issue remains the distribution of losses from the collapse. Since 2019, responsibilities of the state, Banque du Liban, and banks have become deeply intertwined within a financial model that accumulated massive distortions. Therefore, any sustainable solution cannot be limited to shifting losses from one budget to another or burdening a single party. Transparent identification of losses, legal assignment of responsibilities, adherence to the hierarchy of rights, and maximum protection of depositors are essential—while simultaneously preserving the viability of the state and the financial sector.

That is why it is crucial to separate bank restructuring from the Financial Order and Deposit Recovery Law. The former addresses the status of banking institutions, while the latter should contribute to resolving the fiscal gap and defining how depositor rights will be handled. Any reform of one without the other will remain incomplete.

The challenge is not purely legislative. The success of any law depends on the independence of the bodies implementing it, transparency in assessing bank assets, preventing conflicts of interest, holding violators accountable when proven, and avoiding reckless use of public funds to rescue shareholders or management from the consequences of their decisions. Conversely, it is impossible to build a new sector through measures that eliminate what little remains of viable banking capacity. A difficult balance is needed between financial justice and economic stability.

After seven years, the cost of delay itself has become part of the crisis. Every year without resolution has weakened trust, delayed the return of credit, investment, and growth. Thus, the importance of restructuring lies not in it being a victory for the government, banks, or depositors, but in its ability to establish clear rules so that each party knows its rights and responsibilities.

Lebanon does not need to recreate the pre-2019 banking system, but rather a new sector: smaller, better capitalized, more transparent, and better regulated—one capable of financing the real economy and gradually restoring Lebanese citizens’ trust.

After seven years of crisis management, the hour of truth is not just about passing the law, but about answering the hardest question: Can Lebanon fairly distribute losses, protect rights, hold responsibilities accountable, and transform the collapse into the beginning of genuine reform?

Jo Rachal – Nidaa al-Watan