Lebanon: the institutionalization of plunder under guardianship

Already drained after six years of an economic and financial crisis without precedent in peacetime, Lebanon has just crossed a new threshold in the dispossession of its sovereignty and of its population’s savings. On December 26, 2025, the Council of Ministers adopted the so-called “financial gap” law—a text presented as reformist, but which in reality looks like a massive transfer of losses onto depositors. Beneath the technocratic veneer lies a captured state, where elites protect the system and make society pay.

An organized bankruptcy

From the autumn of 2019 onward, Lebanon plunged into one of the worst economic crises worldwide since the nineteenth century. The collapse is the product of a model built on debt, rent-seeking, endemic corruption, and a structural collusion between the state, the Banque du Liban (BDL), and commercial banks.

For decades, public deficits were financed through borrowing and sophisticated financial schemes. When capital inflows dried up, the house of cards collapsed: the national currency lost more than 95 percent of its value, inflation destroyed incomes, and banks imposed capital controls outside any legal framework. Withdrawals were capped, savings evaporated, and more than $80 billion in deposits were de facto confiscated. Retirees, the middle classes, entrepreneurs—an entire society was pushed into precarity, with no effective recourse.

It is in this context of disintegration that the “financial gap” law emerges—less as a sovereign choice than as an injunction.

Three principles, a law that fails on all counts

Any credible financial restructuring rests on three non-negotiable principles:

• clear identification of losses;

• attribution of responsibilities;

• fair and sustainable burden sharing.

The law fails on all three.

It acknowledges massive losses but refuses to establish the chain of responsibility.

It treats the crisis as a fatality rather than as a failure of governance.

It makes depositors—neither decision-makers nor responsible parties—the main shock absorbers, while systemic actors retain their positions, assets, and influence.

A “restitution” that legalizes the haircut

On paper, the mechanism is presented as progressive: reimbursement up to $100,000 over four years, with the remainder converted into financial instruments repayable over a decade. This architecture nevertheless enshrines a harsh reality: a massive haircut on deposits, without any sanction for the architects of the crisis.

The law carefully avoids the contentious issues:

• no serious restructuring of the state;

• no credible progressive tax reform;

• no systematic recovery of illicit profits;

• no dismantling of the toxic nexus between banks and political power.

It saves existing structures instead of transforming them.

It preserves elites instead of restoring justice.

It freezes a system that has failed.

Legalization of theft, amnesty for the guilty

This law places the bulk of the cost on citizens, even though banks, the central bank, and the state share responsibility for the catastrophe. Banks reaped colossal profits by financing a notoriously insolvent state. The Banque du Liban concealed its losses. The state spent without oversight.

And yet, instead of judicial proceedings, independent audits, or the confiscation of illicit assets, the text resembles a disguised amnesty. The executive transfers its burden to the banks—and ultimately to depositors—while preserving the decision-makers who made the crisis possible.

Handing the central bank over to the market

The core risk is technical and explosive: the massive issuance of financial instruments backed by the assets of the Banque du Liban, estimated at $20 billion. A weakened central bank, within a state on the brink of bankruptcy, would thus pledge its strategic assets to the markets.

This exposure creates a triple risk:

• increased dependence on international markets;

• massive litigation in the event of default;

• heightened vulnerability to political and geopolitical shocks.

Presented as a solution to compensate large deposits, these certificates create a claim on the central bank’s balance sheet—and therefore, ultimately, on the state’s strategic assets. And because they are freely tradable, they will not remain in the hands of the original depositors.

The scenario is mechanical—and already written

The first sellers will be the most vulnerable: retirees, financially strangled households, small savers unable to wait ten years for a hypothetical restitution. They will sell at steep discounts to obtain liquidity.

That discount is fueled by the law’s ambiguity:

• which assets actually guarantee the certificates (gold, reserves, public assets)?

• under what conditions can these assets be liquidated?

• what effective rights exist in the event of default?

• what is the link to a recapitalization of the BDL?

• what real recourse exists against the central bank or the state?

In other words, uncertainty is embedded in the text.

In finance, uncertainty destroys value.

On the other side, powerful buyers—funds, opportunistic investors, politically connected actors—will accumulate these securities at low prices. Lobbying, diplomatic pressure, and litigation can then be mobilized to accelerate asset liquidation and maximize recovery.

The result is a massive transfer of wealth from the weak to the strong—under the guise of reform.

A law—or a capture?

In a serious framework, instruments granted to depositors should be strictly ring-fenced. No general claim on the central bank, no unlimited guarantees, no future reinterpretation under political or judicial pressure.

Here, the Lebanese executive is crafting the opposite, because the beneficiaries of capital and influence who will buy cheaply tomorrow will work tomorrow to change the parameters of recovery.

“Restoring confidence”?

This text, which claims to restore confidence, will produce the opposite effect. Banking confidence rests on predictability, the protection of rights, and institutional credibility. By legalizing deposit haircuts without sanctioning those responsible, the Lebanese state sends a clear message: no deposit is safe, no right is guaranteed.