REFORM IN FORM, DYSFUNCTION IN SUBSTANCE Evaluating Lebanon’s Legislative and Executive Productivity

PERFORMANCE Theater or Policy Reform?

Lebanon's recent legislative activity, particularly in banking reform, offers a glimpse into the machinery of its political and executive classes. At first glance, the passage of a revised Bank Resolution Law (BRL), and efforts to codify financial repair, seem to mark a step toward progress. But beneath this veneer lies a familiar pattern: institutions eager to produce laws, but resistant to enforce meaning, justice, and reform.

With this note I wanted to assess the productivity of Lebanon’s legislative and executive branches not by the number of laws passed, but by how well these laws:

• Uphold the constitution and legal norms,
• Serve Lebanese society particularly the victims of financial collapse,
• Advance structural reinvention aligned with international norms and domestic need.

RESPECT FOR THE LAW: Legal Multiplication Without Legal Certainty

Lebanon’s executive and legislative authorities have demonstrated productivity in form: drafting laws, amending structures, and launching high-profile reform campaigns. However, the content and enforcement mechanisms of these laws reveal a system that continues to circumvent accountability. Case in point, the revised Bank Resolution Law (BRL). While the law establishes a dual-chamber Higher Banking Commission and outlines valuation, resolution, and liquidation tools, both local analysts and international institutions (e.g., the IMF) have flagged serious concerns:

• Conflicts of interest remain unresolved, especially with banking sector representatives embedded in oversight bodies.
• The law fails to clearly override outdated or conflicting statutes, preserving legal fragmentation and paralyzing implementation.
• Judicial review mechanisms are vague, creating risks of procedural delays and legal entanglement.

In short, Lebanon's lawmakers have drafted a law with the appearance of alignment with international best practice, yet left loopholes wide enough to neutralize its impact.

SERVICE TO SOCIETY: Reform or Redistribution of Pain?

The true productivity of a government is measured by its capacity to protect the public, particularly the vulnerable, and restore trust. On this front, Lebanon’s legislative and executive branches have underperformed dramatically.

• The revised BRL explicitly links depositor compensation to a yet-to-be-passed “Gap Law”, delaying any relief and perpetuating uncertainty.
• Small depositors, pensioners, and everyday savers remain exposed to systemic risk while large depositors face an undefined path to recovery.
• The absence of credible enforcement, such as independent asset quality reviews (AQRs), transparent bail-in rules, or loss recognition, means that the reform sacrifices clarity, not creditors.

Worse, the reform's architecture lacks a forward-looking vision for systemic repair. There is no credible plan for:

1. Full Financial Recovery for Depositors. In the context of Lebanon’s financial collapse, this principle goes far beyond compensating losses, it is about reestablishing the social contract between the state, its banks, and the Lebanese people. The revised Bank Resolution Law (BRL) links depositor compensation to a still-pending “Gap Law,” effectively putting the resolution of depositor claims on indefinite hold. This perpetuates uncertainty and undermines public confidence. Full financial recovery means that no depositor, especially small savers, retirees, and salary account holders, should carry the burden of a crisis they neither caused nor benefitted from. Yet, the current legal framework dodges direct state responsibility and offers no guarantees of restitution. Instead of ensuring fairness and clarity, it leaves room for discretionary outcomes shaped by political convenience. A credible path to depositor recovery requires:

• Recognizing and distributing the financial burden transparently across stakeholders (state, banks, shareholders).
• Ending the ambiguity around asset valuations and legal claims.
• Enacting enforceable safeguards that prioritize small depositors.

This is not merely a financial obligation. It is the foundation for restoring trust in the banking system and in the state itself.

2. Restoring Financial Intermediation for SMEs and Households. A functioning financial system channels savings into investment and provides credit to households and small businesses, the lifeblood of economic activity. Lebanon’s banks, however, have been paralyzed since the crisis. They are not performing the basic role of financial intermediation. Credit lines are frozen, interest rates are punitive, and risk assessments are distorted by unresolved legacy exposures. The revised BRL does not include any proactive roadmap to revive intermediation. Without clean balance sheets and reliable liquidity provisioning, banks will remain passive custodians of frozen assets rather than engines of growth. SMEs, already battered by inflation, power outages, and market contraction, have no access to working capital or credit expansion. Restoring intermediation means:

• Restructuring banks to enable them to lend again.
• Ring-fencing viable banking operations from toxic legacy assets.
• Aligning monetary policy tools to stimulate responsible lending, particularly to productive sectors.

Inaction here condemns Lebanon to a low-trust, cash-based, informal economy—one that excludes the majority and benefits only a few.

3. Rebuilding the Banking Sector on Clean Balance Sheets. The most critical test of meaningful reform lies in whether Lebanon’s banking sector will be reconstructed with honesty. Currently, book values are fictional, loss recognition is avoided, and asset quality reviews are either non-existent or politically obstructed. This creates the illusion of solvency while concealing the depth of insolvency. Rebuilding on clean balance sheets means:

• Conducting independent, internationally credible asset quality reviews (AQRs).
• Writing off unrecoverable assets, whether sovereign exposures, central bank placements, or non-performing loans.
• Forcing shareholders to absorb losses before any public or depositor-funded recapitalization.

This is the opposite of what has been happening: banks and the state continue to obscure losses, prolonging the crisis and delaying economic revival. A “clean slate” approach must be institutional, not theatrical. It requires empowering a fully independent resolution authority with the legal clarity and operational tools to restructure, liquidate, or merge banks based on actual viability. Only then can Lebanon’s banking system re-emerge as a trusted steward of deposits, a catalyst for investment, and a foundation for economic renewal.

RE-INVENTING LEBANON: Missed Opportunity or Deliberate Evasion?

Lebanon's reconstruction must begin with truth, not technicalities. Laws cannot deliver reform when their political intent is to delay, not resolve.

According to your detailed paper on what policymakers can and cannot do, Lebanon’s leaders have failed to:

• Acknowledge the full extent of losses in the banking sector.
• Establish a credible, transparent roadmap for triaging banks (viable, restructurable, non-viable).
• Empower new monetary authorities to act decisively and independently.

The BRL, despite its structural complexity, does not address the broader crisis of trust, nor the systemic failure of regulatory bodies, past or present. It is an instrument without teeth, serving more to appease international observers than to spark national transformation.

From Legal Drafting to INSTITUTIONAL RE-INVENTION

Lebanon does not suffer from a lack of laws. It suffers from a surplus of bad faith. The legislative and executive branches have shown an ability to produce legislation, but not to produce reform. Productivity, in this sense, is a mirage.

A truly productive state would:

• Codify loss recognition, independent oversight, and depositor protection into binding, enforceable statutes.
• Prioritize institutional clarity, merging fragmented authorities and conflicting mandates into a coherent governance framework.
• Enable a financial reckoning grounded in justice, with transparency for creditors and accountability for those responsible for the crisis.

As it stands, Lebanon’s laws are instruments of avoidance, not solutions. The path forward requires more than technocratic alignment with Basel or IMF checklists. It demands political courage, societal accountability, and a national commitment to start anew.