At the same time, the Council did not entirely reject the state's ability to adopt exceptional measures during times of crisis. Rather, it established a clear limit on such powers, holding that any measure of this kind must be enacted within a clear legal framework by the competent legislative authority and accompanied by a defined mechanism to compensate those whose rights have been restricted or diminished.

A Blow to the "Deposit Write-off" Idea

The decision challenges one of the most controversial ideas advanced by the authorities since the onset of the financial crisis: the possibility of shifting part of the losses onto depositors through the write-off or reduction of deposits by means of a government decision or regulatory measure.

The ruling carries particular significance in light of the recovery plan debates that have been ongoing since 2022, especially during the tenure of Prime Minister Najib Mikati’s government, when proposals were put forward to cancel part of the Central Bank of Lebanon’s foreign-currency obligations as part of a broader effort to redistribute losses and secure the support of international stakeholders, particularly the IMF.

What Does the Ruling Mean Legally?

Legally, the decision establishes three key conclusions. According to Dr. Akram Azoury, lawyer for the Association of Banks, its significance extends beyond the immediate dispute.

First, it affirms the independence of the administrative judiciary from political authority and confirms its power to annul decisions that violate property rights outside constitutional frameworks.

Second, it clarifies that any process of restructuring losses or imposing restrictions on funds cannot be carried out through vague government decisions or regulatory measures, but must be grounded in a clear law enacted by Parliament that defines compensation mechanisms and the limits of any impact on rights.

Third, it establishes a strong judicial precedent for any future initiatives aimed at seizing or cancelling deposits, as the principle affirmed by the Council concerns the very substance of the right itself, rather than a mere procedural detail.

He further adds that the decision also reinforces the principle of halting the financing of the state through the Central Bank of Lebanon, in line with the monetary and credit law, and helps restore confidence in the banking system, stressing that no recovery plan can succeed if it is based on writing off depositors’ rights rather than safeguarding them.

Does This Mean the Deposit Crisis is Resolved?

The financial gap remains unresolved, and the state currently lacks an actionable plan that provides for refunding funds or fairly distributing losses. In this context, the Secretary-General of the Association of Banks, Fadi Khalaf, considers that the State Council’s decision is not a mere legal detail, but rather a reminder that rights cannot be erased through administrative decisions, and that it is unacceptable to tell depositors and banks that they have lost their rights because the state and the Central Bank of Lebanon have defaulted.

He added: “A plan must be developed that recognizes existing rights, is transparent with the public regarding available capacities, distributes responsibilities fairly, and at the same time preserves the remaining ability of the banking sector to recover. Deposits cannot be recovered through slogans, but only through a clear framework that defines responsibilities and assigns each party its due obligations.”