Government approves
bank restructuring law

Creation of a Bank Restructuring Authority

The government approved on a long-awaited draft law that would pave the way for the comprehensive restructuring and potential liquidation of troubled banks, in a move seen as a crucial step toward restoring stability to the country’s ailing financial sector.

The law comes in close succession to the recent adoption of the law lifting banking secrecy, forming part of an essential package of reforms required by Lebanon’s economic situation and its agreement with the International Monetary Fund (IMF).

The law also sets the stage for the forthcoming bill focused on addressing financial gap in the financial sector. This upcoming legislation will aim to restore financial balance and is deemed necessary to fully implement the banking reform law passed today.

The government stressed that while the new banking reform law has been passed, its implementation is contingent on the passage of the financial gap law, highlighting the interdependence of the three core reforms: lifting banking secrecy, restructuring banks, and closing the financial gap.

The law introduces a full legal framework for intervening in the operations of failing banks, with the aim of protecting depositors, safeguarding financial stability, and ensuring the continuity of essential banking services.

At the heart of the draft law is the creation of a Bank Restructuring Authority, a specialized independent body tasked with overseeing the resolution process of distressed financial institutions. This authority would have sweeping powers, including the ability to initiate bank restructuring, appoint independent valuers, enforce asset transfers, and if necessary, trigger liquidation procedures.

The law clearly outlines the conditions under which a bank is deemed to be failing or likely to fail, and introduces several restructuring tools such as recapitalization, forced mergers, and asset separation. These measures are designed to be implemented quickly and transparently, with minimal disruption to the banking system.

To protect depositors, the law reinforces the role of the National Institute for the Guarantee of Deposits, ensuring that eligible deposits are preserved. A special court will be designated to resolve disputes arising from restructuring or liquidation decisions, though the law notably states that key decisions by the Restructuring Authority cannot be appealed in regular courts.

The draft also introduces provisions related to Islamic banking, cross-border cooperation with foreign regulators, and transparency rules that limit conflicts of interest among officials involved in the process. While the legislation reaffirms Lebanon’s banking secrecy laws, it carves out exceptions in cases involving illicit enrichment or financial misconduct.

“This draft law represents a critical milestone in the government’s effort to address the deep crisis in the banking sector,” said a government official familiar with the deliberations. “It establishes the foundation for an orderly resolution process while aiming to restore public confidence and safeguard Lebanon’s financial future.”

The government is expected to hold further consultations with stakeholders, including representatives from the banking sector, international financial institutions, and civil society groups. While the draft law has yet to be approved by Parliament, its discussion signals a serious shift toward structural reforms that have long been demanded by both local and international observers.