Lebanese Cabinet approves a draft law to return funds wiped out with the 2019 collapse of banks

Lebanon’s Cabinet approved a draft law on Friday designed to address the devastating financial losses suffered by Lebanese banks during the country’s 2019 economic collapse, providing a mechanism to return frozen deposits to citizens who lost access to their savings.

The legislation, which requires parliamentary approval before implementation, represents the government’s first concrete step toward compensating individual depositors whose accounts were frozen when the banking system imploded. The Cabinet vote was not unanimous, with thirteen ministers supporting the measure and nine opposing the so-called “financial gap law.”

Outside the government headquarters, demonstrators gathered in protest, expressing deep skepticism about the legislation’s effectiveness. The timeline for parliamentary consideration remains uncertain, with analysts noting that previous financial reform efforts have faced significant delays in Lebanon’s fractured political landscape.

For years, a contentious blame game has unfolded regarding responsibility for the economic catastrophe. Banking institutions have pointed to endemic government corruption, while critics contend that banks operated an unsustainable Ponzi-like scheme, using new deposits to pay existing obligations rather than maintaining proper reserves. Former central bank governor Riad Salameh, currently facing international corruption charges, has consistently denied enabling such practices.

Prime Minister Nawaf Salam issued a statement following the Cabinet meeting outlining the proposal’s implementation structure. According to Salam, once enacted, the law would ensure smaller depositors—representing approximately 85% of all account holders—receive their full deposits over a four-year period. Larger depositors would initially recover up to $100,000 in cash.

For those with deposits exceeding this threshold, the remaining funds would be converted into tradable bonds backed by the Central Bank’s estimated $50 billion in assets and revenue streams. Salam defended the value of these bonds, providing an example that depositors with $3 million could recover approximately $60,000 annually through this mechanism.

The prime minister also emphasized that the legislation includes accountability provisions, rejecting characterizations that it represents a “forgive and forget” approach to the financial sector’s mismanagement.

This draft law aims to provide a legislative framework for restructuring Lebanon’s shattered financial sector after years of political deadlock among competing factions, banking interests, and central bank leadership. The proposal incorporates several measures long advocated by the International Monetary Fund, including transparent protocols for returning deposits, restructuring bank liabilities, and improving overall system transparency.

The IMF has previously expressed frustration with Lebanon’s halting progress on economic reforms, noting that more than five years of negotiations have failed to produce an approved recovery plan capable of restoring market confidence and international investment.

Lebanon’s economic situation remains dire. The national currency has plummeted, losing over 90% of its value against the U.S. dollar, pushing more than half the population below the poverty line. Financial instability has been further complicated by the recent 14-month conflict between Israel and Hezbollah, which ended with a U.S.-brokered ceasefire last November. According to World Bank estimates, reconstruction and recovery costs from the war total approximately $11 billion.

Newly elected President Joseph Aoun and Prime Minister Salam have pledged to implement substantial economic reforms to address the prolonged crisis. The economic collapse has been so severe that Lebanon has largely reverted to a cash-based economy, with widespread public distrust of financial institutions and chronically low investment levels.

As the draft legislation moves toward parliamentary consideration, many Lebanese citizens remain skeptical about whether this initiative will finally provide relief after years of frozen accounts and broken promises from political leadership.