Yet bankers have been resisting attempts to make their shareholders assume responsibility for those losses and instead have been trying to shift the burden to the government or even their own depositors. The country’s political class, blamed for decades of corruption and mismanagement that led to the meltdown, has also resisted reforms, The Associated Press reported.

Restructuring the banking sector is a key demand of the International Monetary Fund to start getting Lebanon out of its paralyzing financial crisis. The proposed IMF reforms will likely force most of the country’s 46 banks — a huge number for a nation of 5 million people — to close down or merge.

In the years after Lebanon’s 15-year civil war ended in 1990, the banking sector was the crown jewel of the country’s economy, offering high-interest rates that lured in investments and deposits from around the world.

Most of those depositors have now lost access to their savings after the country’s lenders for years made risky investments by buying Lebanese treasury bills despite widespread corruption and overspending by the country’s political class. These practices helped lead to the economic crisis that started in October 2019.

Today, banks in Lebanon neither give loans nor take new deposits, and they return to people a small fraction of their savings in US dollars at an exchange rate that is far lower than market value.

“They have become zombie banks,” says financial adviser Michel Kozah, who writes a financial column for a Lebanese newspaper.

Despite the banks' informal capital controls, billions of dollars are estimated to have been laundered out of the country by major political and financial officials, according to local reports.

In recent months, angry depositors have been storming bank branches around Lebanon to get their trapped savings by force, leading to confrontations with bank employees, who have also been victims of the meltdown.

Since the crisis began, the number of bank employees dropped by one-third, to just under 16,500 and one in five branches has closed.

Jinane Hayek, who lost her job as a branch manager at one of the largest banks in the country two years ago, said she understands the pain of the depositors, but that the bank branches are constrained by the current economic conditions.

“There are some people who cannot afford to eat because their money is stuck in the bank,” she said at the bakery she opened after her layoff in the mountain town of Bekfaya, adding that she is happy to be far from the fray.

The future of banks is unclear. A tentative agreement between the IMF and the Lebanese government, reached in April, called for an “externally assisted bank-by-bank evaluation for the 14 largest banks.”

But so far nothing has been done by either the government or the lenders. The banking sector has mounted a vigorous opposition to proposed measures that would put the system’s losses on the shoulders of shareholders rather than ordinary depositors.

A proposed government economic recovery plan released in September values the financial sector’s losses at about $72 billion, mostly at the central bank. The plan noted that the huge scale of the losses means that the central bank cannot give back the banks most of their money and the banks cannot return most of the money to depositors.

The World Bank said in a recent report that the losses are more than three times the GDP of 2021, making a bailout impossible because there aren’t enough public funds. The best solution is “a bail-in (that) makes large creditors and shareholders bear the main cost of bank restructuring” rather than small depositors, the report said.

Banks have been opposed to a bail-in solution, suggesting that state assets should be sold or invested to make up for the losses on the long-term.

Nassib Ghobril, chief economist at Byblos Bank, one of Lebanon’s largest lenders, accused the government of a “complete abdication of responsibility.”

He said that while the banking sector was attracting foreign currency from around the world, the government failed to implement any structural reforms and squandered the funds. He said a 2017 decision to increase civil service salaries, initially estimated at $800 million, ended up costing three times as much. It doubled the fiscal deficit in one year and contributed to the financial crisis, he said.

The banks were also negatively affected by the government’s decision to default on its foreign debt in March 2020, he said.

Kozah, the financial columnist, said that a solution to covering the losses is still possible by having an auditing firm look into accounts and return the money that was illicitly transferred outside the country by influential people after the crisis began, as well as attempting to separate good banks from bad ones.

Meanwhile, there has been little progress in talks with the IMF over the proposed reforms.

In October, Lebanon’s parliament approved amendments to a banking secrecy law, another IMF demand, but advocacy groups say the amendments are not enough. The central bank still uses several exchange rates at a time when the IMF has been pressing for unifying them to one rate.

Progress on other proposed measures is now on hold amid a power vacuum in the presidency and the Cabinet.

Deputy Prime Minister Saadeh Shami, who is leading the talks with the IMF, said recently that all deposits worth $100,000 and less will be returned to depositors while those with larger amounts will be compensated in the long term through a sovereign fund.

“There is no fair plan for all depositors,” Shami acknowledged.

Caretaker Economy Minister Amin Salam said that whenever the government is discussing the distribution of losses and responsibilities, there is a push back from the banks.

The government is aware that it “needs to save the banking sector, because ... without a banking sector, we will not be able to get the economy standing back on its feet."