Whose Losses? Lebanon's Depositor Loss-Allocation Debate
The distribution of Lebanon's financial-system losses was the largest economic decision in the country's history. It was made by default, not by law.
By Nadia Karam
Published · Updated
Executive Summary
This analysis discusses how withdrawal rules and informal restrictions can distribute financial losses without a transparent legislative settlement. It does not establish a verified total loss, a measured distribution by depositor group or findings about who transferred funds abroad.
When a financial system collapses, someone absorbs the losses. Every restructuring in modern history — Iceland, Cyprus, Greece — allocated losses through legislation, subject to courts and votes. Lebanon is the exception: six years after the 2019 collapse, no law allocates the losses. But the absence of law is not the absence of allocation.
The allocation happened through Banque du Liban circulars. Circular 151 set a withdrawal exchange rate far below market, imposing an effective haircut on every withdrawal. Circular 158 offered partial recovery on strict schedules. Informal capital controls — never legislated — determined who could move money abroad. The cumulative effect is a loss-allocation regime as real as any law, but built without a single vote, without judicial review of its distributional choices, and without publication of its cumulative incidence.
The article cannot establish the distribution of losses by deposit size, timing or depositor connections without the underlying model and records. The previously stated 70–85% estimate and findings about early exits are withdrawn.
Evidence & Sources
- Basic Circulars 148, 151, 158 — Banque du Liban
- Lebanon Financial Recovery Plan — Government of Lebanon
- Forensic audit published excerpts — Alvarez & Marsal (excerpts)
- Lebanon Economic Monitor series — World Bank
- Deposit distribution statistics — Banque du Liban statistical bulletins
Background: A Collapse Without a Law
Every proposed capital-control law since 2019 has died in committee or been passed and gutted. The vacuum was not neutral: it delegated the largest distributional decision in Lebanese history to central bank circulars and individual bank discretion.
The Circular Regime as Loss Allocation
Withdrawal rates and eligibility rules can affect the value and timing of deposit recovery. The article does not provide the historical circular-by-circular table or calculations previously advertised.
Who Exited Early
The Institute cannot substantiate the previously described transfer findings with identified audit excerpts, testimony or an original dataset. This article makes no finding about particular depositors or their connections.
Counterarguments
The banking association argues losses originated in sovereign default and BdL losses, not bank conduct. This is partially supported: the loss stack is dominated by BdL and sovereign exposure. But origin and allocation are distinct questions; our subject is the latter.
International Comparison
Cyprus allocated losses in weeks through legislation with judicial review. Iceland's emergency law ranked depositors by statute. Lebanon's approach is unique in extending the allocation over years without legal form — maximizing both uncertainty and the advantage of inside information.
What Could Realistically Be Done
A loss-allocation law with a depositor hierarchy protecting small savers first; retroactive audit of transfers during the freeze window with publication of aggregate findings; and statutory validation or correction of the circular regime so that its distributional choices finally face review.
Methodology
This article is qualitative analysis of the loss-allocation debate, not an original depositor-level investigation. The Institute cannot provide the previously claimed model, deposit-distribution extract, historical-rate calculations or annex. The source list requires more precise version and table references before quantitative findings can be reproduced.
Disclosures
The previously stated research-team account disclosure and its claimed independence from modeling have not been substantiated. No original depositor model is available.
Timeline
Oct 2019 — Banks close, informal controls begin
Apr 2020 — Circular 151 issued
Withdrawal rate set far below market.
2021 — Circular 158 recovery scheme
Partial dollar recovery on multi-year schedule.
2022 — Government estimates $72–76B losses
2023–2026 — Capital control law repeatedly fails
Corrections
2026-10-15 — Research evidence review (2026-10-15): Withdrawn the unsupported original-model claims, loss estimates, depositor-distribution findings and claims of a full annex. Removed the unsubstantiated account of outreach to Banque du Liban and ABL and the attributed ABL response. Reclassified from Investigation to Analysis and revised the headline and summary. No correspondence or replacement model has been invented. Article images were preserved.
2026-10-15 — Evidence disclosure correction (2026-10-15): Removed the unsupported disclosure that remained after the research evidence review.
One member of the research team holds a frozen deposit account in a Lebanese bank, disclosed here for transparency; the account played no role in source selection or modeling.
The previously stated research-team account disclosure and its claimed independence from modeling have not been substantiated. No original depositor model is available.