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BANKING COLLAPSE, EXPLAINED
Lebanon did not simply “run out of money.”
The state borrowed, banks attracted dollars, and the central bank defended an exchange-rate promise the economy could no longer fund. When new dollars stopped arriving, the losses did not disappear—they were trapped inside banks and shifted onto depositors and people paid in Lebanese pounds.
STATUS
Where this stands: the exchange rate has stabilized and economic activity rebounded in 2025, but the banking losses and deposit claims were still being negotiated through restructuring and depositor-recovery legislation in 2026. Stabilization is not the same as deposit recovery.
The causal chain
Five links—not one villainous interest rate
The World Bank used “Ponzi finance” for Lebanon’s post-war public-finance system. That is not proof that every deposit product or every banker was individually convicted of running a criminal Ponzi scheme.
STEP 1
Persistent state deficits
The government accumulated debt while basic services and productive capacity remained weak.
STEP 2
Banks pulled in dollars
High returns and confidence in the dollar peg helped attract deposits, including money from the diaspora.
STEP 3
BdL absorbed the dollars
Financial-engineering operations moved bank dollars toward the central bank and public financing.
STEP 4
Inflows stopped
By 2019, the system could no longer attract enough fresh foreign currency to meet its promises.
STEP 5
Losses moved to the public
Default, depreciation, deposit restrictions and inflation distributed the hole unevenly.
1,507.5
Old official LBP/USD peg maintained for more than two decades
89,500
BdL reference USD/LBP rate shown in 2026
98%
Approximate currency value loss cited by the World Bank since the crisis
~40%
Cumulative real-GDP contraction since 2019 estimated by the World Bank by 2024
FACT
Lebanon defaulted on its foreign-currency sovereign debt in March 2020. The banking crisis, sovereign default and exchange-rate collapse are connected balance-sheet failures—not three unrelated disasters.
INFERENCE
Calling the central bank alone “the Ponzi operator” hides the chain of responsibility. The state borrowed, commercial banks concentrated exposure, the central bank prolonged the peg, and political institutions delayed loss recognition and restructuring.
Read the evidence
Primary and institutional sources
Figures refer to different dates and populations. Each card states what the source is being used to establish.
World Bank — Ponzi Finance? ↗
Public-finance mechanism and elite capture
World Bank — A Fragile Rebound ↗
2025 growth, inflation and unresolved crisis
IMF — February 2026 mission ↗
Bank restructuring and depositor-recovery law
Banque du Liban — exchange rates ↗
Official USD/LBP reference rate
World Bank — Poverty assessment ↗
Household impact and dollarization divide
FOLLOW THE MECHANISM
How can a bank owe dollars it no longer has?
Continue with the balance-sheet mechanics behind deposits, loans and bank-created credit.
Open the credit-creation explainer →