Restoring Confidence Begins with Achieving Justice Among Depositors
The financial and economic crisis in which Lebanon has been mired continues on its faltering course, despite more than six years having passed since its eruption in the autumn of 2019, when capital inflows halted, the exchange rate collapsed, and confidence in the banking sector was shaken. Yet the executive and legislative branches continue to refrain from taking the appropriate measures to address the causes of the crisis and its catastrophic repercussions on the economy and society, particularly with regard to restructuring the banking sector, determining the scale of losses and distributing them fairly, and adopting a clear and transparent recovery plan.
By contrast, attempts to contain the crisis since its outset have been confined to the measures undertaken by Banque du Liban in its capacity as the monetary authority, through a series of basic circulars concerning the gradual repayment of foreign-currency deposits and their subsequent amendments, in addition to other circulars aimed at regulating the exchange rate and stimulating purchases through platforms. Meanwhile, the draft Capital Control law remains lying dormant in the drawers of Parliament, as is the case with the draft law on the financial gap, bank reorganization, and banking system reform.
Basic Circular No. 158 marked the first of the circulars allowing foreign-currency depositors to obtain, gradually and on a monthly basis, a small portion of their deposits, initially divided between cash payments in cash dollars at a subsidized exchange rate and payments in Lebanese pounds. The circular deemed foreign-currency deposits formed before 30 October 2019 to be eligible deposits governed by its provisions, allowing its implementation under specific conditions. Since its issuance by Banque du Liban on 8 June 2021, this circular has undergone numerous amendments to its mechanisms and terms.
As for deposits converted from Lebanese pounds into foreign currencies after 30 October 2019, their depositors had to wait until 2 February 2024, the date on which Banque du Liban issued Basic Circular No. 166, which paved the way for the gradual repayment of those deposits after they had been classified as ineligible in preceding circulars, notably the aforementioned Basic Circular No. 158. In turn, Basic Circular 166 has undergone several amendments to its terms and mechanisms, despite the short period of time since its issuance.
Perhaps the most significant amendment made by Banque du Liban to Circular 166 during the month of October 2024 was the expansion of the range of beneficiaries of its provisions, allowing depositors who converted their deposits from Lebanese pounds into foreign currencies after 30 October 2019 to benefit from its provisions, provided the deposits are under 300,000 US dollars. Meanwhile, the provisions of Circular 166 apply to deposits resulting from end-of-service indemnities in both the public and private sectors, even if they equal or exceed the ceiling noted above.
Important as the circulars issued by Banque du Liban in its attempts to contain the financial and monetary crisis may be, the procedures and measures contained in these circulars cannot on their own constitute a gateway to the required solutions, a guarantee of financial and monetary stability, or a sufficient reason to restore confidence, because they came outside the framework of an integrated fiscal and economic policy. Monetary policies, however important they may be, cannot take the place of fiscal and economic policies, which must form the framework that defines monetary policies, and not the other way around.
Today comes Circular 169 issued by Banque du Liban, requiring banks to obtain prior written approval from Banque du Liban before executing any transfer or repayment of amounts exceeding a certain ceiling, so as to prevent banks from automatically complying with rulings issued by foreign courts, such that the Lebanese judiciary must grant an enforcement order, following Banque du Liban's prior approval, for these rulings to become enforceable in Lebanon.
Although this circular does not prohibit the transfer or repayment of deposits, and all that it requires is obtaining prior written approval from Banque du Liban for transactions exceeding the ceilings set in the regulatory texts previously issued by the bank, it has sparked widespread controversy in financial and monetary circles alike, with some considering it a new and additional form of Capital Control on deposits.
On the other hand, the Association of Banks in Lebanon welcomed Basic Circular No. 169 as a regulatory decision, and for emphasizing the necessity of full adherence to the rule of equality in dealing with depositors, considering that it aims to preserve the rights of and protect all depositors without exception or discrimination, and to apply the principle of justice and equality among them amid the financial and economic crisis. It is this justice and equality that the banks should have observed in their relationship with depositors, and that Banque du Liban should have observed in all its circulars concerning depositors and deposits.
At a time when Banque du Liban's circulars lack the force of law despite their regulatory strength, Circular 169 must be turned into a law enacted by Parliament, in order to prevent its circumvention or the bypassing of its provisions by influential local figures or by the foreign judiciary. Law alone preserves depositors' rights and protects their savings, and the enforcement of applicable laws is what guarantees the achievement of justice and the establishment of equality among them.
Based on the foregoing, it becomes clear that rebuilding confidence in the banking sector does not begin with Banque du Liban alone, but with the commitment of the banks themselves to the principles of justice and equality, and with their assumption of their moral and social responsibilities toward depositors. The crisis has constituted a harsh opportunity, yet one whose implications are clear: the banking sector cannot continue as a closed system of privileges, trading off deposits through arbitrariness and procrastination, and then using the absence of legislation as a pretext.
Restoring depositors' confidence also requires from the banks a sincere initiative that goes beyond circulars, through drawing up a comprehensive and clear plan to repay deposits, without exceptions or unjust ceilings, and according to a fair timetable. Confidence is not imposed by circulars; rather, it is restored through deeds, and by returning rights to their rightful owners.
Translated from Arabic with AI. Read it in Arabic