Metransparent Exclusive
By almost any measure, Lebanon’s proposed Financial Stabilisation and Deposit Recovery Law represents one of the most significant interventions in the country’s banking crisis since deposits were frozen in 2019.
Much of the debate has focused on who will bear the losses: the state, Banque du Liban, commercial banks or depositors. Yet one of the draft law’s most important consequences has received remarkably little attention.
It may fundamentally change the incentives facing depositors.
For nearly seven years, Lebanese savers have had few meaningful choices. They could leave their deposits trapped in the banking system, sell them in the secondary market at a discount, or wait for successive governments to produce a recovery plan that never arrived.
The Gap Law introduces a new variable into that equation.
Under the current draft, certain dollar deposits created after 17 October 2019 through the conversion of Lebanese pounds into US dollars—or through the purchase of discounted dollar-denominated bank cheques—would no longer necessarily be recognised at their nominal value. Instead, they would be recalculated using historical exchange rates according to when those balances were created.
The proposed conversion rates are striking:
As per the law, the dollars are supposed to be fresh once the GAP law passes; however, this “deposit” will still bear restrictions as it will be paid back during many years, that’s why it will still be considered as “lollars” and trade at a discount.Depositors, might not have access to it immediately depending on the amount of their deposit in the bank.
The implication is straightforward.
A banking dollar created in 2023 could ultimately be recognised at barely one-fifth of the value implied by today’s banking reference exchange rate.
Suppose you converted Lebanese pounds into a US$100,000 bank balance during 2023.
Under the draft law, that balance could be recalculated using LL18,000 rather than LL89,500. In practical terms, the law would recognize only about 20% of the purchasing power implied by today’s banking reference rate (18,000 ÷ 89,500 ≈ 20%).
Let’s run another example, imagine you converted your Lebanese pounds into bank dollars in 2022 because you feared the currency would collapse. You thought you had protected your savings. Under the proposed Gap Law, those dollars could be valued at LL30,000each. Yet today, those same recognised lollars can still buy shares on the Beirut Stock Exchange using a value of around LL89,500 per dollar. For many depositors, that difference may be reason enough to act before the rules change.
So, while Parliament considers recognising some deposits at LL18,000 and 30,000LL per dollar another market continues to value those same recognised banking balances very differently.
The Beirut Stock Exchange.
Today, recognised “lollars” can still be exchanged for listed securities using the prevailing Banque du Liban banking reference rate of approximately LL89,500 per US dollar.
The disparity is extraordinary.
The same banking dollar that may soon be recognised by law at LL18,000 and other discounted rates can still purchase listed equities using a valuation close to LL89,500.
That is not simply an accounting inconsistency. It is a powerful economic incentive.
Several weeks ago, I argued that Lebanese depositors should consider exchanging frozen bank balances for ownership of productive assets, using Solidere as the most obvious example. The argument then rested on asset quality. A trapped bank claim is ultimately a claim on an insolvent financial system; a listed share represents ownership in a company with identifiable underlying assets.
The proposed Gap Law strengthens that argument considerably.
The issue is no longer merely the quality of the asset. It is the valuation at which depositors can still exchange one asset for another.
If Parliament ultimately recognises certain post-2019 deposits at LL18,000 while the Beirut Stock Exchange continues to accept those same recognised lollars at approximately LL89,500, the market will have created a window that rational investors are unlikely to ignore.
The implications extend well beyond Solidere.
Every listed company on the Beirut Stock Exchange effectively becomes a potential vehicle through which depositors can convert frozen banking claims into ownership interests before the legal treatment of those claims changes.
Ironically, legislation intended to resolve Lebanon’s banking crisis may instead accelerate money leaving the banking system—not through cash withdrawals, which remain largely impossible, but through equity purchases.
Markets respond to incentives.
The Gap Law changes those incentives.
If enacted in anything close to its current form, the legislation may ultimately be remembered not only for allocating losses, but for inadvertently creating the strongest incentive since 2019 for depositors to exchange frozen bank deposits for listed assets.
In trying to define what a banking dollar is worth, Parliament may have reminded depositors that they are still free to decide what they would rather own.