Banks have announced they will be allowing depositors with accounts less than 50k, to withdraw half their savings in dollars, and half in liras at the market rate.

This operation is expected to help reimburse about 1 million Lebanese, and cost about $13bn.

It remains unclear how the operation will be funded. BdL recently insisted that banks had successfully complied with Circular 154, launched last August, which sought to increase banks’ capital by 20% and secure 3% of banks’ deposits in fresh dollars through their corresponding banks.

Measures included returning 15% of bank transfers exceeding $500k made since July 2017 and converting them into a 5-year term special account. Another measure was to urge importers to return 15% of the value of letters of credit opened from 2017 to 2019 and located in correspondent banks.

Banks were expected to secure a $3.2bn net foreign assets surplus. Whether some banks have achieved their mission, the source of the larger amount of the $13bn still remains to be seen.

While the move is expected to appease part of the population, it represents a band-aid solution for the time being.

Banks have so far failed to implement any meaningful reforms, partly since it is hard for them to accurately assess their losses without a government to negotiate with, and without a clear picture of the targeted Lira exchange rate. Total losses in the financial sector have been estimated to range from 50b to 80bn, depending on the source and method of calculation.

There is currently no clear consensus in Lebanon on how the losses should be allocated among shareholders, creditors, depositors, government employees, and future generations. There is no agreement on which assets should be transferred to a trust fund, nor which banks should be closed.

The forensic audit – many times delayed, and which saw a contract with Alvarez & Marsal cancelled in December – would provide a clearer picture of the biggest beneficiaries of the financial engineering scheme, issue a clearer roadmap of a bail-in strategy, and enable the consolidation of the banking sector under objective criteria so they can get recapitalized successfully.