The notorious haircut threat has been looming over the heads of depositors at Lebanon’s banks for months. While political promises have repeatedly been made that people’s deposits are safe, a new revelation from France points the other way.
On September 10th, a delegation of the Association of Banks in Lebanon (ABL) met with French officials in France.
The aim of the meeting was for France to provide guidance to help rescue Lebanon’s collapsing banking sector. Although the meeting’s record was confidential, Reuters was able to get a hold of its minutes.
According to the minutes, a French official said during the meeting that it might be difficult for Lebanon’s banks to prevent savers from losing some of their deposits.
It’s arguable that, while not officially, a haircut has already taken place for depositors in Lebanon.
In addition to the fact that most people have been practically locked out of their own accounts and left unable to control what happens to their funds, those with US dollar accounts have been given the option to withdraw their money in Lebanese pounds at painfully low exchange rates.
Now, more context is available regarding the fate of these stuck deposits.
“While it is a matter of principle for the ABL that depositors should bear no losses, it may be difficult to defend this to the end,” said Pierre Duquesne, French President Macron’s envoy to coordinate international support for Lebanon.
“But this is a matter of negotiation,” Duquesne added, according to the minutes.
The reforms that President Macron and other world leaders have been calling for in Lebanon aim partly to restructure the fallen banking industry in Lebanon.
One of the primary steps that have been recommended to achieve this is the formal implementation of capital controls to prevent the outflow of capital from Lebanon overseas.
“There is no miracle solution,” the French official declared, addressing Lebanon’s unruly amount of debt, stressing that a range of steps is needed to restructure it.
As it seems, there will be no miracle to save people’s money from melting away in the banks, either. For the hope of retrieving this money to survive, serious and definitive efforts must be put into the reform process by the Lebanese ruling elite.