"Akhbar al-Yawm"

Cabinet Endorses Banking Sector Reform Amid Ongoing Crisis

IMF supports banking reform, but with different objectives than the politicians

Last Saturday, the Lebanese Council of Ministers approved a draft law aimed at restructuring and reorganizing the banking sector, subsequently forwarding it to Parliament for legislative review.

Although the government convened three sessions last week to finalize the draft, seeking to demonstrate its commitment to accelerating the implementation of the required reforms, the proposed legislation has faced significant criticism. Observers argue that the draft appears more retributive in nature than reformative.

An economic analyst familiar with the matter told the "Akhbar al-Yawm" agency that while the IMF is indeed pressing for comprehensive banking sector reform, its objectives differ fundamentally from those of Lebanon’s political class. The IMF’s primary concern is the financial soundness and capitalization of banks, not the preservation or abolition of banking secrecy per se. The source emphasized that, domestically, the law is being interpreted through multiple, and at times conflicting, lenses.

The source noted that the draft law aligns with international efforts led by the Financial Action Task Force (FATF) to enhance financial transparency, particularly with respect to tracking illicit financing channels such as those linked to Hezbollah. However, the source warned that the provisions could be weaponized domestically, potentially allowing for politically motivated lifting of banking secrecy and the public exposure of private financial transactions. Such a move could create systemic risks that extend beyond the political arena into social and economic instability.

Raising concerns over selective enforcement, the source recalled that even during the tenure of former Banque du Liban Governor Riad Salameh, there were instances where confidential data was leaked by members of the Banking Control Commission to the media.

In response to a question about the political motivations behind the draft, the source stated that dismantling the current banking structure has long been on the agenda, ostensibly to allow new financial institutions to enter the market, an initiative dating back to the onset of the financial collapse in 2019.

The source called for key revisions to the draft legislation, including the establishment of clear legal safeguards and procedural protocols for accessing sensitive financial data. "The unregulated dissemination of banking information would amount to a breach of financial privacy, exposing individuals to undue reputational harm", the source warned. "There is a legitimate public interest in holding those responsible for the collapse accountable, but that objective should not come at the cost of violating individual rights to financial confidentiality".

He emphasized that any suspension of banking secrecy should be limited, targeted, and legally justified, similar to the restricted access granted to Alvarez & Marsal for the forensic audit of the central bank.

In this context, the source expressed skepticism regarding the law’s ability to pass through joint parliamentary committees in its current form, underscoring that no legislative proposal will be accepted unless it includes explicit provisions for depositor protection. A previous attempt at banking sector reform under Prime Minister Najib Mikati’s cabinet failed for similar reasons.

The source concluded by noting the deep-seated conflict of interest within the political class: most high-ranking officials had transferred substantial sums abroad at the height of the crisis, and are therefore unlikely to endorse legislation that could expose their financial activities.

The draft law, as approved by the Cabinet, comprises 37 articles across 10 chapters, in addition to an annex outlining the hierarchy of claims among private capital holders and creditors. The complete text spans 30 pages.