Assessment of the Gap Law

The draft bill on Financial Stabilization and Deposit Recovery, also known as the “Gap Law,” seeks to restore financial stability and establish a mechanism for deposit recovery after six years of institutional paralysis and deliberate delays. 

It also introduces elements aimed at allocating losses, determining accountability, and protecting the majority of depositors. 

However, despite progress, the text suffers from several inconsistencies and weaknesses that risk undermining its stated objectives.

• The feasibility of the deposit recovery mechanism is called into question, particularly since the proposed financing structure creates future liabilities without identifying clear sources of financing.

• This ambiguity also raises questions regarding the fate of the gold and the level of state contribution. In doing so, the text opens the door to imposing undetermined additional liabilities on the Central Bank and the state, thereby generating financial and legal risks and potentially re-creating unsustainable debt levels in the near future.

• Critical figures are missing; macro-fiscal and debt sustainability impact analyses have not been presented alongside the draft bill.

• The text is ambiguous with regard to the hierarchy of claims; while it seeks to address the case of 85% of depositors, it leaves out pension and social security funds.

• At the level of accountability, the text introduces improvements. While it includes a reference to the forensic audit, it does not set it as a requirement for the resolution process, and fees imposed on certain irregular transactions remain low.

Government officials announced that they will be working with the IMF, however, the draft will need to be amended if it is to secure the IMF’s endorsement and, consequently, support from the international community.

In this analysis, Kulluna Irada presents an assessment of the most important elements of the draft bill against key principles and international standards. 

These critical gaps must be addressed for the law to fulfill its objectives of ensuring equitable recovery for depositors, enabling a sound reboot of the banking system and the economy, and restoring trust in Lebanon’s financial system.