Central Bank opposed to
government banking law

President Aoun visits BDL the morning after

The Governor of the Central Bank (BDL), Karim Souaid, presented a strongly worded legal study to Parliament’s Finance and Budget Committee today, warning that the government’s proposed banking reform law undermines the bank’s independence and risks destabilizing the financial system.

In a visit to the Central Bank, the morning after Souaid's session in Parliament, President Joseph Aoun said that a transparent banking sector, operating without political interference, is essential for Lebanon’s economic recovery. “Your responsibility is great in restoring confidence—both domestically and internationally—in Lebanon’s banking system and in safeguarding the national currency," said the President. Governor Souaid affirmed his commitment to: "Preserving the independence, integrity, and protection of the Central Bank from any external interference."

The study argues that the draft law—approved by the Cabinet on April 12—violates the foundational principles of Lebanon’s banking sector by diluting BDL’s regulatory authority and introducing political interference. The government’s proposal aims to restructure the banking sector, but the central bank claims it does so at the expense of legal coherence and institutional autonomy.

Key Concerns Raised by the Central Bank
1. Erosion of BDL’s Independence
• The study asserts that the reform law restructures the Higher Banking Commission (HBC), the body responsible for overseeing bank resolutions, in a way that weakens BDL’s control.
• It introduces new political appointees to the HBC, reducing the influence of BDL’s governor and granting the government greater sway over banking decisions.
• The central bank warns this could lead to politically motivated interventions, jeopardizing monetary stability.

2. Disruption of Legal Coherence
• Lebanon’s banking laws since 1963 have been built around BDL’s supervisory role, ensuring a consistent regulatory framework.
• The proposed reforms, however, create parallel structures that conflict with existing laws, potentially leading to legal chaos and regulatory gaps.

3. Lack of Judicial Oversight
• The law grants the HBC sweeping powers to liquidate banks without adequate judicial review, raising concerns over due process and depositor rights.
• The central bank argues this violates constitutional principles, including the separation of powers.

Government’s Stance vs. Central Bank’s Defense
The government has defended the draft law as necessary to address Lebanon’s banking collapse, which has frozen depositors’ funds since 2019. Officials argue that reforms are needed to restore confidence and comply with international financial standards.
However, the central bank’s study counters that the law’s approach is flawed, risking further instability. It calls for amendments to ensure BDL retains its supervisory role and that any restructuring aligns with Lebanon’s long-standing banking laws.

The Governor told parliamentarians that the financial collapse is a ‘systemic crisis’ requiring exceptional legal measures. He said that the financial meltdown is structural, requiring exceptional legislation to address accountability and loss-sharing between the state, banks, and the Central Bank.

Committee Chair Ibrahim Kanaan acknowledged “significant differences” between the government and BDL’s visions but called the debate "healthy" given the central bank’s legal independence.

What’s Next?
The parliamentary committee will now review both the government’s proposal and the central bank’s objections.

To resolve disagreements, a technical subcommittee was formed. It will work with the Ministry of Finance and BDL to reconcile differences before presenting a revised draft.

With Lebanon’s financial crisis still unresolved, the debate over banking reform remains highly contentious. If Parliament passes the law without addressing BDL’s concerns, legal challenges could follow, prolonging the country’s financial paralysis. Meanwhile, depositors—many locked out of their savings for years—remain caught in the middle of the political and institutional struggle.

Why This Matters
• Depositors’ Fate: The banking reform law could determine whether frozen savings are ever returned.
• IMF & International Backing: Lebanon’s ability to secure an IMF deal hinges on credible financial reforms.
• Institutional Power Struggle: The clash highlights tensions between the government and the central bank over who controls Lebanon’s crippled financial system.