IMF urges Lebanon to prioritize shareholder losses over depositors

The International Monetary Fund has called on Lebanese authorities to amend the draft law on financial stability and deposit recovery.

The IMF said its request aims to ensure that shareholders and junior creditors bear losses before depositors, as part of efforts to restructure Lebanon’s troubled banking sector.

At the end of its mission to Lebanon, the IMF stressed the importance of respecting the hierarchy of claims, so that depositors are not made to absorb losses before shareholders and creditors. The Fund said this approach would help achieve positive outcomes from the banking sector restructuring while maintaining fiscal and debt sustainability.

The IMF also called for the draft “financial gap law” to be aligned with international principles and standards, and for any deposit repayment proposals to be consistent with the banking sector’s viability and the sustainability of public debt.

The proposed law, part of Lebanon’s financial reforms, would assign responsibility for an $80 billion financial gap—money owed to depositors that resulted from government borrowing from the central bank, which in turn relied on loans from local banks. The crisis erupted after the government defaulted on its debts to the central bank, triggering a chain reaction that left banks unable to fully repay their clients.