Lebanese banks and policymakers are covertly eroding depositors’ savings through legal loopholes and financial engineering while avoiding accountability and resisting transparent solutions.

For more than four years, Lebanese depositors have been held hostage by a banking system that has failed to honor its most fundamental obligation: safeguarding their savings. What was once considered a basic financial right has become a protracted struggle for millions who entrusted their money to institutions that have since betrayed them. Uncertainty looms as depositors wonder whether they will ever regain access to their funds while banks and policymakers continue to delay transparent solutions.

Among the most alarming discussions is the so-called “write-off of deposits.” What does this entail? Is it legally or financially justifiable? More crucially, is it ethical for policymakers to entertain such a solution to a crisis of their own making?

In financial and accounting terms, banks can write off assets but not liabilities. Deposits are liabilities because they represent money owed to customers. Unlike bad loans—assets that banks can declare unrecoverable—deposits remain obligations until they are legally settled or restructured. A bank cannot unilaterally write off deposits because they are contractual obligations protected under Lebanese and international financial law. Writing off deposits without depositor consent would violate private property rights and breach accounting principles such as IFRS and GAAP, which require liabilities to be settled, restructured, or legally discharged through bankruptcy proceedings.

Since banks cannot legally erase deposits outright, they employ indirect mechanisms to reduce their real value. These methods, couched in legal, regulatory, and financial engineering maneuvers, impose losses on depositors without officially writing off their accounts. One such approach is the conversion of large deposits into bank shares (equity) rather than returning the money. This means depositors effectively become shareholders in failing banks, holding risky assets with volatile or negligible value. This “bail-in” strategy recapitalizes banks using depositors’ funds instead of government intervention. A precedent for this occurred in 2013 in Cyprus when large deposits in the Bank of Cyprus were forcibly converted into shares to stabilize the financial system.

Lollarization, another insidious mechanism, refers to the forced conversion of U.S. dollar deposits into Lebanese lira or controlled dollar withdrawals at unfavorable rates. The exchange rate for these conversions is determined not by individual banks but by regulatory authorities such as the central bank or the government. This process has inflicted massive losses on depositors, who have been forced to withdraw funds in Lebanese lira at rates far below market value. U.S. dollar accounts have effectively been frozen, preventing access to real dollars.

Multiple exchange rates further muddy the waters, creating loopholes that benefit the banks and the government at depositors’ expense. Lebanon’s central bank has enforced this strategy through circulars such as 151 and 161, which dictate withdrawal terms and mandate conversions at artificially low rates. While these directives maintain the illusion that banks are fulfilling their obligations, they systematically deplete depositors’ wealth.

Parliament could attempt to formalize such conversions through legislation, but doing so would be highly controversial and likely unconstitutional due to protections on private property rights. The Council of State, Lebanon’s highest administrative court, could intervene to challenge such directives, yet it has largely remained silent, failing to uphold depositor rights. Historical parallels underscore the severity of Lebanon’s crisis. Argentina’s Corralito between 2001 and 2002 forced depositors to convert dollar deposits into pesos at a deflated rate, triggering widespread financial losses and public unrest. If a bank collapses and undergoes liquidation, depositors stand to recover only a fraction of their savings. Deposits, classified as liabilities, are settled only after secured creditors and government claims are addressed. This means that depositors—many of whom relied on these banks as custodians of their life savings—are last in line for repayment.

Historical cases illustrate this brutal reality. The 2008 collapse of Lehman Brothers left depositors and creditors with only partial recoveries. In contrast, the 2023 banking crisis in the United States saw deposits under the $250,000 FDIC threshold protected. In Lebanon, the infamous liquidations of Bank Al-Madina and JTB Bank demonstrated the grim outcome when banks ran out of liquidity: depositors were left with little to nothing. Some policymakers propose a legal framework to formally write off deposits and “clean up” the banking sector.

Inevitably, such a move would violate private property rights, breach contractual obligations, and trigger domestic and international legal challenges. It would also further erode confidence in Lebanon’s already fragile financial system. Instead, the government and banks continue deploying covert tactics—devaluation, bail-ins, and capital controls—to achieve similar ends without overt legal violations. While deposits have not been officially written off, financial engineering has rendered them nearly worthless. As a result, depositors bear the brunt of the crisis, while banks remain insolvent with no clear resolution.

Depositors must recognize that passive waiting will not safeguard their rights. They must stay informed, demand transparency, and organize collectively to push for change. However, fragmentation among depositors has weakened their ability to exert influence. Small depositors who have managed to survive without accessing their funds lack urgency. Struggling depositors desperately need their money but lack leverage. Large depositors, with alternative financial options, may choose to wait rather than engage in legal battles. Banks and policymakers will continue imposing restrictive measures with impunity without unity and collective pressure.

To counter this, depositors must monitor banking policies and legal changes, seek legal counsel on deposit protection and potential class-action lawsuits, form advocacy groups to represent depositors’ interests and demand legislative reforms that prevent unilateral deposit reductions and ensure accountability.

Lebanon’s financial crisis cannot be resolved at depositors’ expense alone. A transparent, legally sound, and accountable approach is required to rebuild trust in the banking sector. Banks must also acknowledge that their survival hinges on restoring depositor confidence. This requires proactive engagement—offering clear, transparent updates on deposit recovery mechanisms and adopting an approach prioritizing trust over avoidance. Banks and depositors remain trapped in an endless cycle of uncertainty without constructive dialogue and tangible solutions. The time for inaction has passed. Depositors must mobilize, and banks must engage. The future of Lebanon’s financial system depends on it.