IMF urges Lebanon to prioritize shareholder losses over depositors

The International Monetary Fund has urged Lebanese officials to modify a draft financial stability law, insisting that shareholders and junior creditors should absorb losses before depositors, as part of efforts to restructure Lebanon's struggling banking sector. The IMF emphasized that depositors should not be burdened with losses prior to shareholders and creditors during the restructuring process.

This approach, according to the IMF, would facilitate positive outcomes from the banking sector overhaul while preserving fiscal and debt sustainability. The IMF also advocated for the "financial gap law" to align with international norms and standards, ensuring that any deposit repayment plans are consistent with the banking sector's viability and the sustainability of public debt.

The proposed legislation, a component of Lebanon's financial reforms, would assign responsibility for an $80 billion financial gap - funds owed to depositors resulting from government borrowing from the central bank, which in turn depended on loans from local banks. The crisis emerged following the government's default on its debts to the central bank, triggering a cascade that left banks unable to fully reimburse their clientele.