Constitutional Council annuls three articles of Lebanon’s amended Bank Recovery Law

Lebanon’s banking reform back to square one? Lebanon’s Constitutional Council has unanimously struck down Article 3 of the country’s amended Bank Recovery and Restructuring Law — the clause that defines what the reform is for — upholding an appeal filed by President Joseph Aoun against. The council also annulled two phrases from Articles 19 and 27 of the law citing unconstitutionality — one authorizing travel bans on bank shareholders, directors, and senior managers of banks in liquidation, and another shielding bank staff who comply with Higher Banking Commission orders from civil or criminal action.

Article 3 was annulled over procedural problems, not because of its contents. The council found that the article was passed without securing the parliamentary majority required for its passage. At the center of the procedural failure was tension over how to refer to Lebanon’s Code of Money and Credit, the provision that frames Banque du Liban’s (BdL) institutional powers. The final version retained a vague referral to the code, and added a reference to international standards — likely a response to the IMF’s criticism that the current Code of Money and Credit is “outdated and out of step with international best practice,” Lebanese French daily L’Orient Le Jour reports.

REMEMBER- We reported earlier this month that Aoun referred Article 3 to the council, objecting to the provision’s treatment of the Code of Money and Credit and its implications for the central bank’s future powers and independence.

The ruling now sends the three annulled provisions back to a parliament that was barely able to pass the law to begin with. A fresh vote on Article 3 will reopen the fight over how tightly the new reform is tethered to BDL’s existing legal powers — the same question that has pitted central bank Governor Karim Souaid against ministers and MPs over the composition and independence of the Higher Banking Authority, the body meant to steer restructuring.

That’s a setback for Lebanon’s scramble to secure IMF financing. After the multilateral lender’s managing director Kristalina Georgieva said that progress is being made over a financing package, restarting parliamentary procedures and voting over some of the law’s passages prolongs the time needed for Lebanon’s to reach the finish line. The amendments will now return to the Finance and Budget Committee before any floor vote, with no timeline yet set. That also delays the Financial Gap Law, the piece of legislation that would determine who pays for depositors assets and the thing that the IMF has made clear Lebanon needs to get right before any new financing.