Will the Lebanese people ever get their money back?

A parliamentary committee in Lebanon last week issued a draft law for restructuring the country’s financial sector. The Lebanese people surely breathed a sigh of relief, but does this mean they will finally regain access to their bank deposits, which they have been unable to withdraw for several years? That remains uncertain.
The committee found that 84 percent of depositors have less than $100,000 in their accounts. So, they came up with a formula: amounts up to $100,000 will remain in their accounts. Anything over $100,000 will be converted into some obscure form of government-linked debt instrument.
Some relief for depositors, then — but it does not mean that they will simply be able to withdraw up to $100,000 of their money. Article 37 of the draft law states that its implementation will be suspended until another law, the financial gap law, is passed.
In other words, the financial restructuring law does not mean a bank is under any obligation to make up to $100,000 readily available for depositors to withdraw. It simply means this is the maximum amount the bank can owe a customer.
The bank can then write off any money over this $100,000 threshold, converting it into long-term, government-linked debt instruments, which can be uncertain investments and difficult to convert into cash at a fair market price.
The long-running financial crisis in Lebanon is not the fault of the depositors but of greedy bankers and corrupt government officials, yet once again it is the depositors who are paying the price. No one is being held accountable, either among the political elite or the banking sector.
It is important to note that the banks have been acting unlawfully since 2019. Article 140 of the 1963 Code of Money and Credit law states that if a bank “declares itself in a state of suspension of payments,” it should be delisted. However, banks in Lebanon have continued to operate, despite their inability to pay depositors.
Also unlawful is the fact that banks have selectively allowed some depositors to withdraw money. Several politicians transferred huge amounts of money — billions of dollars — to banks outside the country when the crisis began. Meanwhile, small depositors could not withdraw even a few hundred dollars to meet their daily expenses. There has been no real investigation into this.
Lebanon’s financial crash of 2019 can be compared to the crisis that hit Iceland in 2008. In both cases, the signs were the same: a banking sector that was bloated in comparison to gross domestic product. In both countries, the banks were driven by greed. The difference is the ways in which the two states handled the crisis.
Iceland’s parliament immediately — it did not wait six years — put in place an emergency law that placed control of the banks in the hands of the Financial Supervisory Authority, which launched an investigation to uncover any evidence of fraud. About 30 bankers were prosecuted, convicted and jailed.

The financial crisis in Lebanon is not the fault of the depositors but of greedy bankers and corrupt government officials.

Dr. Dania Koleilat Khatib

In Lebanon, no bankers have been prosecuted, as those at the top have been able rely on political cover.
Icelandic banks were put into receivership or faced liquidation. Their shareholders incurred most of the losses. Banks’ assets were distributed among depositors, with priority given to domestic customers. In other words, the depositors were the top priority.
This is not the case in Lebanon, where the depositors have been the ones bailing out the banks.
Yet, despite the very accommodating nature of the new law, the banks in Lebanon are fighting it, using the media as a tool with which to trash the legislation. They do not want to accept any responsibility for the crisis.
The banks enjoy the protection of a corrupt political class. The corruption of the government was financed by the banking sector. Banks used customers’ deposits to finance the government; they lured depositors with the promise of high interest rates and then put their money into bonds at the central bank, a very profitable strategy with very little risk to the banks. The central bank in turn provided the government with loans that were squandered through corruption.
The banks are responsible for all this, for failing to make the interests of depositors their main priority and instead providing loans to the government because this allowed them to make quick and easy money.
The banks have tried to deflect the blame on to others. They have pointed fingers at Kulluna Irada, a civil society organization and pressure group that has lobbied for financial reforms. They claim the group spread rumors that instigated a run on the banks and left them unable to repay depositors. The media, which has close links to the banking sector, has smeared the organization.
They even propagated a conspiracy theory suggesting that Kulluna Irada was financed by the “global left” and the American billionaire George Soros. This is inconceivable. After all their shady and twisted operations, which were so obvious to most observers, the banks dared to blame it all on an international left-wing conspiracy, Soros and his Open Society Foundations. This is an insult to the intelligence of the Lebanese people.
The status quo is very convenient for the political class and the banks. However, they can no longer ignore the financial crisis and the wiped-out deposits or act like it is business as usual. The International Monetary Fund has requested significant financial reforms to clean up Lebanon’s banking sector before billions of dollars of financial aid can be unlocked. As long as the political class protects the banking class, however, there will be no real reform.
The new restructuring law — suspended until a financial gap law is passed — is not a solution. It is a legal illusion. Without a financial gap law, it allows failed banks to write off savings, remain open while insolvent and avoid accountability.
It offers no guarantees, no timeline and no restitution. The depositors will continue to bail out the banks and the chances are that they will see very little of the money they worked so hard to save.

• Dr. Dania Koleilat Khatib is a specialist in US-Arab relations with a focus on lobbying. She is co-founder of the Research Center for Cooperation and Peace Building, a Lebanese nongovernmental organization focused on Track II.