Disputes over Lebanon’s Banking Restructuring Law persist as draft clears committee

Lebanon’s Banking Restructuring Law made it through Parliament’s Finance and Budget Committee after around six weeks of debate. The law — one of the core reform requirements from the IMF — is now on its way for a general legislative session expected to be called before mid-August.

A finished draft hasn’t done much to settle the discord on what’s actually in the legislation. The Banking Restructuring Law establishes a framework for a state-led due diligence process on the country’s banks to assess which banks will be on the chopping block. It also lays the ground for recovering funds for depositors, a process that will be regulated by the Financial Stabilization and Deposit Recovery Law, which is yet to be passed. Committee Chair Ibrahim Kanaan insists that depositors are protected, as deposits are excluded from loss absorption until the latter law is passed.

The flashpoint is one article on recapitalizing troubled banks and who can be barred from a future capital increase. The committee swapped the government’s majority-of-shares test for an “effective control” standard, backed by a Banque du Liban letter citing constitutional concerns. Kanaan calls the change academic for now, since the current crisis is carved out and applies only to future failures. Separate reporting describes the visible “clout” of the Association of Banks, with businessman Antoine Sehnaoui lobbying MPs, and a Thursday vote producing a bank-friendly formula by one vote against the IMF-backed version. Kanaan denies any such vote happened.

The IMF, for its part, isn’t leaving it to interpretation. When word of the bank-friendly formula reached a Fund official, the reported response was blunt: No help for Lebanon unless the version prepared with the government is adopted. That’s the leverage hanging over the whole exercise — the restructuring law is just one plank the IMF treats as a single package alongside the financial gap law, banking secrecy reform, and judicial independence.

Two smaller measures also made the cut. The bill sharply raises fines for undeclared cross-border cash transfers — now 10% of the sum, up from a flat LBP 10 mn, and 20% for repeat offenses — a nod to curbing Lebanon’s cash economy and money laundering. It also gives foreign property buyers a five-year grace period to complete projects stalled by war, covid-19, and instability.