The draft Financial Gap Law, also known as the Financial Regularization Law, is set to be discussed at the Cabinet table on Monday. Prime Minister Nawaf Salam has praised the project, presenting it as the first comprehensive legal framework to recover deposits and address the financial gap in a systematic and fair manner, within available means, after six years of paralysis, silent erosion of deposits, chaotic crisis management, and the destruction of the Lebanese middle class.
In his introductory remarks, Salam raised false hopes among depositors ahead of the Cabinet’s approval of a law that, in fact, absolves the state of its responsibilities and grants it a full acquittal for decades of corruption, waste, and lost public funds, whether through subsidies, electricity losses, or the artificial maintenance of the exchange rate: losses exceeding $50 billion.
Salam was right to say that Lebanon is entering a new phase. What he failed to mention is that this phase aims to eliminate the remaining depositors’ funds and the remnants of the banking sector, all to hide the misconduct of successive governments and prevent the state from bearing any cost.
The bill drafted by the government does not halt the erosion of deposits; it wipes them out. It leads to a social catastrophe and fails to address the financial gap in any systematic way. How can the Prime Minister claim that this law limits responsibility evasion and denial of losses?
The Financial Gap Law can be summarized as follows:
* This law represents a major defeat for Central Bank Governor Karim Souhaid and the approach he has defended since the outset of discussions on resolving the deposit crisis, an approach based on hierarchy and fairness in allocating responsibility, starting from the recognition that Lebanon is facing a systemic crisis for which the Lebanese state holds the primary responsibility, followed by the Central Bank, and then the commercial banks.
* The law forces banks to cover the entire gap estimated at around $30 billion at the Central Bank, while the state acknowledged a debt to Banque du Liban amounting to $16.5 billion. Although the state has recognized this debt, the law does not specify how or when it will be repaid.
* The law obliges banks to absorb the full financial gap at Banque du Liban according to ratios determined by the size of the Central Bank’s obligations to each bank; this will effectively push banks into insolvency and burden them with the full cost of the gap.
* Under this bill, the state does not commit itself to any financial obligation, despite being the primary party responsible for fund loss.
* By ignoring the state’s responsibility for the cost of the gap, the drafters overlook that it was the state that squandered billions, whether on electricity, exchange-rate stabilization, or subsidies.
* The law grants the state the right to determine the size of its debt to the Central Bank by mutual agreement between the two, while its wording allows the state to evade its obligations under the pretext of “debt sustainability.”
* How can a law that claims to address the financial gap ignore the importance of implementing Article 113 of the Code of Money and Credit, which clearly stipulates that if Banque du Liban incurs losses, they must be covered by the Lebanese Treasury?
* The law gives the Cabinet a non-binding option to inject additional capital into Banque du Liban under Article 113, forgetting that this article is mandatory, fundamental, and non-negotiable. It appears that the Salam–Bsat–Jaber trio forgot that Article 113 is binding and that failure to apply it constitutes a violation of the law subject to accountability.
* The draft law fails to consider approximately $84 billion in debt owed to banks and does not treat the mandatory reserves held at the Central Bank, estimated at $11 billion, as part of banks’ and depositors’ funds, but rather as a contribution by Banque du Liban to covering part of the gap.
* It is unacceptable to demand that banks pay $14 billion without accounting for these reserves, which are their rightful property and ultimately belong to depositors. What the Financial Gap Law proposes is payment from depositors’ and banks’ money, not from the Central Bank’s own funds.
* The law fundamentally contradicts the discourse promoted by Prime Minister Nawaf Salam and the promises made by Finance Minister Yassine Jaber, Economy Minister Amer Bsat, and Central Bank Governor Karim Souhaid.
* The proposed law represents a clear-cut attack on depositors. It sacrifices their rights and savings, making their losses final and legally sanctioned.
* The law offers depositors the recovery of their funds through bonds that carry no real guarantees, have deferred maturities, and unknown value.
* Implementing the Financial Gap Law in its current form would shatter the trust of investors and depositors alike, negatively impacting economic activity and stripping Lebanon of any real chance of a rapid recovery.
* The bill fails to uphold the principle of protecting depositors’ rights and the banking sector, instead squandering those rights by replacing deposits with uncovered bonds.
* Prime Minister Nawaf Salam was wrong to claim that depositors would not face any haircut on their principal. In reality, they incur one through the opaque conditions attached to these bonds. While the proposal may appear positive on the surface, these instruments are likely to have little real value and lack any objectively determinable worth, amounting to “theoretical figures with no foundation.”
* This law places a burden on banks that exceeds their capacity, potentially driving some into bankruptcy, which would mean depositors losing the bulk of their savings.
* The proposed bill encourages banks to exit the market, allowing the Central Bank to liquidate their assets and return only a negligible portion of funds to depositors.
* The draft law disregards Article 13 of the Code of Money and Credit, which explicitly states that commercial banks’ placements with Banque du Liban are commercial debts, that is, obligations owed by the Central Bank to the banks.
* Any reduction or partial write-off of the value of banks’ placements with the Central Bank cannot be considered an innocent technical measure but rather an indirect confiscation of savings.
This law is neither a recovery plan nor a rescue project but a legal framework designed to organize a comprehensive collapse of the banking sector and the legally sanctioned eradication of depositors’ funds. Once it is implemented, we get a single outcome:
* The liquidation of the entire Lebanese banking sector and the disappearance of depositors’ savings.
* At the end of this “lie” promoted by the Salam–Bsat–Jaber law, Banque du Liban would hold $55 billion, while depositors would hold zero.
* The Lebanese state would emerge as the “richest state in the world,” with zero obligations, zero debt, and zero cost for compensating depositors.
The result: farewell to depositors’ money!
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