The Banking Executive Magazine - February 2026 Issue 2

ROLE OF BANKS In Lebanon’s Fiscal Gap Law of 2025, banks play a central and highly contested role because they are expected to absorb a significant portion of the country’s estimated $70 billion in financial losses. Com- mercial banks, which had locked de- positors out of their savings since the 2019 collapse, are tasked with re- structuring their balance sheets and sharing losses alongside the state and the central bank. The law envisions banks contributing to depositor re- covery, with the government pledg- ing that up to 85% of deposits will be returned within four years, but this requires banks to remain solvent and operational. At the same time, banks have strongly resisted the law, disput- ing the government’s loss estimates and warning that excessive burden- sharing could trigger systemic col- lapse. Their role is therefore both functional (managing deposits, re- structuring liabilities, and enabling recovery) and political, as their op- position shapes parliamentary de- bates and influences whether the law can be implemented effectively. STRATEGIES FOR BANKS To comply with Lebanon’s Fiscal Gap Law of 2025, banks will need to adopt a set of coordinated strategies that balance regulatory requirements with depositor protection and institu- tional survival. First, they must con- duct transparent audits and viability assessments to determine the extent of their losses and identify which in- stitutions can be restructured versus those that may need resolution. Sec- ond, banks should implement capital restructuring plans, including recap- italization through shareholder con- tributions, asset sales, or mergers, to absorb part of the financial gap with- out collapsing. Third, they can de- sign deposit recovery mechanisms such as phased payouts, debt-to-eq- uity swaps, or securitized instru- ments that align with the government’s pledge to return up to 85% of deposits within four years. Fourth, banks must strengthen risk management and compliance sys- tems, using digital tools and interna- tional accounting standards to ensure accurate reporting and build trust with regulators, depositors, and the IMF. Finally, engaging in constructive negotiations with the government and international partners will be critical, as banks need to balance their survival with Lebanon’s broader economic recovery, making collabo- ration rather than resistance the most viable long-term strategy. FUTURE HORIZON The horizon for Lebanon’s Fiscal Gap Law of 2025 stretches across the next four to five years, as the govern- ment has pledged to recover up to 85% of deposits by 2030 through phased implementation. In the im- mediate term, the law must pass through parliament in early 2026, where political divisions and bank- ing sector resistance could delay or reshape its final form. If enacted, the medium term horizon involves re- structuring banks, conducting viabil- ity assessments, and negotiating with the IMF to unlock international aid, which is critical for stabilizing the economy. The longer term horizon, extending to 2030, centers on restor- ing depositor confidence, rebuilding financial governance, and position- ing Lebanon for gradual economic recovery. Ultimately, the law’s hori- zon is both a test of Lebanon’s polit- ical will and an opportunity to reset its financial system, with success de- pendent on transparent enforcement and sustained international support. BEST PRACTICES TO LEARN One of the best practices to learn from Lebanon’s Fiscal Gap Law of 2025 is the importance of formally acknowledging financial losses rather than denying them, as trans- parency is the first step toward recov- ery and rebuilding trust. Another lesson is the need for inclusive bur- den-sharing, where losses are distrib- uted among the state, central bank, banks, and depositors, instead of concentrating them on one group, which helps maintain systemic sta- bility. The law also highlights the value of tying reforms to interna- tional frameworks, since linking compliance to IMF support ensures accountability and provides access to external aid. Additionally, Lebanon’s experience shows that clear timelines for depositor recov- ery, such as the pledge to return up to 85% of deposits within four years, can restore confidence if backed by credible enforcement. Finally, the process underscores the necessity of stakeholder engagement and com- munication, as involving parliament, civil society, and the banking sector in debates helps legitimize reforms and increases the chances of suc- cessful implementation. the BANKING EXECUTIVE 14 ISSUE 206 FEBRUARY 2026