Collage by Jaimee Lee Haddad
The Financial Stability and Deposit Recovery draft law — commonly known as the “financial gap law” — has triggered a wave of criticism since the Cabinet adopted it on Dec. 26, 2025.
But what exactly is this financial gap? What does the government’s plan actually propose? And why has it sparked backlash from almost everyone involved?
Let’s break it down.
1. What is the financial gap draft-law the Cabinet just adopted?
First, the financial gap means the money frozen in banks — estimated at about $80 billion — as a result of the 2019 financial and economic collapse.
Now, what does this draft-law say?
At first glance, it proposes these main pillars:
- Small deposits first: About 84 percent of depositors, those with up to $100,000, would see their money returned mainly in cash on a monthly or quarterly basis over a four-year period, with a minimum of $1,500 per month.
- Large deposits later: Deposits above $100,000 would be addressed through long-term financial instruments with maturities ranging from 10 to 20 years.
But what about mid-depositors?
Take the example of a 75-year-old whose life savings is $200,000. They get to be paid out over a period of 4 years for the first half of their savings and the remainder paid out over 10 to 20 years through long-term financial instruments.
- Depositors who withdrew their money at very unfavorable exchange rates during the crisis (lollars) will not be compensated, as well as those depositors whose savings were already in Lebanese lira, which lost about 98 percent of its value since 2019.
- Bank restructuring: The law distinguishes between banks that can recapitalize within five years and those that cannot.
The draft paves the way for mergers, wind-down or closures, with the aim of allowing the sector to restart under viable conditions, with banks that are capable of functioning through recapitalization.
- Accountability measures: In simple terms this means recovering funds from those who had insider information which allowed them to move their money abroad at the beginning of the crisis, while the majority of accounts were frozen. If they refuse to transfer back their funds to Lebanon, they could face a fine of up to 30 percent of the amount that was transferred abroad.
How to know who got away and with how much?
- This brings us to the forensic audit. The bill did not clearly stipulate that a forensic audit would take place. Salam said there is “a possibility" of an audit. As a reminder: Lebanon commissioned a forensic audit of BDL by Alvarez & Marsal in 2020 to trace the money, but the firm recused itself after the central bank refused to provide key data, citing bank secrecy. Although Parliament later lifted secrecy and the audit partially resumed, only a limited, preliminary report was produced, leaving many core questions unresolved.
2. How have stakeholders reacted?
- Banque du Liban (BDL, the central bank). BDL does not agree with the four-year repayment timeline and says it is unrealistic. It also wants the state to repay a specific amount: $16.5 billion, to be used to return the money to depositors. Where does this number come from? BDL says it lent this money to the state, but the Finance Ministry denies its existence in its accounts. More broadly, BDL is not really Ok with the $80 billion "financial gap" and says that it should be brought down to roughly $50 billion after writing off several deposits mainly accrued interests on deposits since 2016, and “illegitimate deposits” (no one really knows what that means), among others. But that’s a topic for another day.
- Banks and business groups, many of which played a role in the crisis, largely side with BDL. They reject repayment timelines they say cannot be funded. They argue that the state should shoulder the bulk of losses, not banks.
- Depositors are deeply divided. Some groups demand stronger accountability and priority protection for small and medium depositors. Others call for full repayment by the state, even proposing the use of public assets such as gold, a position that would mainly benefit large depositors who hold most of the money. Civil society groups push for loss-sharing in line with international standards, with banks bearing a significant share. Reformist MPs advocate special treatment for retirees, the elderly and mid and large-sized depositors seen as critical to the economy.
- In Parliament, opposition cuts across party lines. The Lebanese Forces (LF), Hezbollah, Amal and the Free Patriotic Movement (FPM) all reject the draft, despite differing narratives. They converge on populist demands to return deposits quickly and make the state pay, while largely avoiding debates over feasibility, fairness and funding sources.
With elections approaching, few political forces are willing to support a plan that could alienate large depositors. No one seems to support the bill except, seemingly, for MP Paula Yaacoubian.
3. What’s next?
Nothing is clear so far. Now the bill has to go to Parliament to be examined by the Finance Committee — no session is scheduled at the time of publication — and Lebanon is still waiting on an assistance program from the International Monetary Fund (IMF).
But the IMF insists on one key principle: a clear order for who absorbs the losses, known as the “loss hierarchy,” which is a non-negotiable precondition to unlock financial help. Under international standards, it works like this:
1. Bank shareholders and banks come first
Their capital is wiped out before anyone else pays a price. The banks then absorb losses through restructuring, write-downs and recapitalization, including bringing in new capital for banks that can still survive.
2. Large depositors ($1 million and above) follow.
Their deposits may be partially written down, converted into bank shares or repaid over long periods.
3. Small and medium depositors are protected.
They are repaid first and as fully as possible.
4. The state steps in last — and only within its means.
It should not take on losses that would push the country into another default.
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