In a significant step towards addressing one of the world's most severe modern financial crises, the Lebanese Cabinet has approved a draft law aimed at returning funds to depositors who lost their savings during the country's 2019 banking collapse.
Cabinet Approves "Financial Gap" Legislation
On Friday 26 December 2025, the Cabinet voted on the proposed legislation, known as the "financial gap law." The vote saw thirteen ministers in favour and nine against, highlighting the contentious nature of the plan. The draft law seeks to formally determine the extent of losses suffered by Lebanese banks during the meltdown and establish a mechanism to return wiped-out deposits.
This marks the government's first concrete move to unlock the funds of individual depositors, whose accounts have been frozen for years. The financial collapse, which erased billions in personal savings, stemmed from decades of corruption, financial mismanagement, and nefarious profiteering, plunging the nation into a deep fiscal crisis.
Details of the Proposed Recovery Plan
Following the Cabinet meeting, Prime Minister Nawaf Salam outlined how the scheme would work if passed by parliament. He stated that smaller depositors, who make up 85% of all account holders, would receive their full deposits back over a four-year period.
For larger depositors, the process would be more gradual. They would first receive up to $100,000 in cash. The remainder of their deposits would be converted into tradable bonds backed by the Central Bank's revenues and assets, which Salam valued at around $50 billion.
"For example, a depositor with $3 million could recover about $60,000 per year," Salam explained, rejecting claims that the bonds would be worthless. He also emphasised that the draft law includes accountability clauses and is not a "forgive and forget" measure.
A Long Road to Reform and Implementation
The path forward remains uncertain. The draft law must now be approved by Lebanon's parliament, and it is unclear when legislators might take it up. Its passage could face significant delays, a pattern consistent with previous attempts to reform the shattered financial system.
The legislation represents a crucial framework for restructuring the banking sector after years of political paralysis. It addresses key measures long sought by the International Monetary Fund (IMF), including clear rules for returning deposits, restructuring bank liabilities, and enhancing transparency. The IMF has repeatedly expressed frustration over years of stalled talks with Lebanon, which have failed to produce an approved economic recovery plan.
Public distrust runs deep. During the Cabinet meeting, protesters held a sit-in outside government headquarters, demanding action and expressing skepticism about the new law. A bitter blame game continues over responsibility for the crisis. Banks point to government corruption, while critics accuse the banks of operating a Ponzi-like scheme, using new deposits to pay old ones. The former central bank governor, Riad Salameh—wanted internationally on corruption charges—has claimed he opposed such practices.
The economic devastation is profound. The Lebanese pound has lost over 90% of its value against the US dollar, pushing more than half the population into poverty. The country now largely operates on a cash-based economy. This financial catastrophe was further compounded by the recent war between Israel and Hezbollah, which ended with a US-brokered ceasefire in November. A World Bank report estimates the cost of reconstruction from that 14-month conflict at about $11 billion.
Newly elected President Joseph Aoun and Prime Minister Salam have pledged to implement reforms. The success of this draft law will be a critical test of their commitment to tackling Lebanon's enduring economic nightmare and restoring a semblance of trust to its financial institutions.
