In December, Lebanon’s government approved a long-delayed Financial Gap Law, an attempt to draw a line under the banking collapse that erupted in 2019. The draft pushed through cabinet by a narrow margin, 13 ministers in favour and nine against, will now be sent to parliament. Its passage reflected the prime minister’s determination to move the process forward despite intense resistance from parts of the banking sector, politically connected interests and a sustained media backlash.

LIMS backed the legislation, arguing that the prolonged failure to resolve the banking crisis has imposed an enormous economic cost. Since 2019, Lebanon’s GDP has fallen from about $54bn to roughly $20bn, implying cumulative losses exceeding $150bn. The collapse reflects, above all, the freezing of bank credit, which deprived businesses and households of financing. Investment stalled, hiring was cut back sharply, and many firms were forced to close. The suggested law relieves banks of legacy liabilities, enabling them to resume lending. By restoring a functioning credit system, LIMS argues, the law could help lay the groundwork for a recovery.

LIMS added that the legislation also seeks to protect smaller depositors by raising deposit insurance coverage from $800 to $100,000, funded jointly by banks and the central bank over four years. Larger deposits would be replaced with asset-backed securities issued by the central bank. With many banks unable to meet their liabilities and facing insolvency, the central bank is presented as a stronger counterparty, particularly as the securities would be backed by central bank assets, including returns on gold and other holdings.

Crucially, the draft abandons the blanket deposit haircuts proposed in earlier versions and instead targets roughly $35bn in so-called “irregular assets” for write-offs. Drawing on the “money in, money out” logic used in the resolution of the Bernard Madoff fraud, the approach aims to limit losses to profits extracted from the deposit pool. These include excess interest earned through financial engineering schemes and preferential exchange rates, as well as inflated bank profits and large post-2019 capital transfers abroad.

According to LIMS, the law’s core architecture is economically coherent, if politically painful. On the balance sheet, it seeks to close an estimated $70bn financial gap through a combination of $35bn in write-offs of irregular liabilities and a revaluation of the central bank’s gold holdings, whose market value has risen to around $40bn. The result satisfies no one but distributes losses in a way that is more equitable and, crucially, implementable.

Critics argued that the law amounted to a disguised haircut on deposits, particularly those exceeding $100,000. They warned that the proposed asset-backed securities intended to compensate larger depositors over time would prove illiquid or effectively worthless, amounting to an indirect confiscation. Some banks, for their part, objected to being required to contribute about $8bn over four years to reimburse their share of deposits of up to $100,000 per depositor, to claw back profits generated through past financial engineering schemes, and to repatriate funds transferred abroad after 2019, when Lebanon was operating under de facto capital controls.

• The Country Is “Choked”… No Economic Solutions Without the Return of Bank Loans. December 13, 2025: Lebanon Debate, Article (AR)
• The International Community Pressures and Lebanon Delays: What Is the Fate of the Economy and Depositors? December 15, 2025: Al Yaum, Video Interview (AR)
• The Deep State Besieges Recovery Attempts… How Do Formal Laws Threaten Lebanon’s Financial Future? December 17, 2025: Raseef22, Article (AR)
• The International Monetary Fund Is Read… and Accountability Is Absent? A Critical Reading of the Financial Gap Law Proposal. December 22, 2025: AlMada, Article (AR)
• The Fate of Deposits and the Financial Gap Law: Is a Solution Near or Are We Facing a New Confidence Crisis? December 23, 2025: Aljadeed, Video Interview (AR)
• Financial Regularization Law: The Government Prepared the Table and Banks Choked on the Bite? December 23, 2025: Al Joumhouria, Op-ed (AR)
• Financial Regularization Law: Is the End of the “Depositors’ Funds” Crisis in Lebanon Near? December 23, 2025: NBN, Video Interview (AR)
• Approval of the “Financial Gap” Law: Towards a Real Reform Path or a Response to International Pressures? December 29, 2025: Democratia News, Article (AR)