To maintain stability among noncompliant commercial lenders, a new reform measure has been introduced, allowing any scheduled bank or financial institution, including troubled Islamic banks, to come under government ownership. This significant step aims to rectify issues within the banking sector and restore confidence in the financial system.
According to the Bank Resolution Ordinance, which was published in the official gazette on Friday, the central bank, Bangladesh Bank, as the regulator, has been granted extensive powers. During the streamlining process, it can temporarily assume control of any bank or nonbank. The ordinance permits the central bank to issue an order transferring one or more shares to a government – owned entity. This move was earlier approved by the Advisory Council of the interim government on April 17.
The ordinance also holds bank executives accountable. Bank high – ups, such as managing directors, chairmen, and other responsible officers, can be held personally liable for the “fraudulent” use of a bank’s funds. They will be required to repay the misused assets or funds, and failure to do so will result in legal action by the bank. Additionally, if a bank owner misuses the bank’s assets for personal gain or engages in fraud, the Bangladesh Bank has the right to initiate resolution proceedings.
The ordinance details various resolution powers of the central bank. It can appoint an administrator temporarily, reinvest capital, transfer assets and shares to a third party, and partially or completely suspend a bank’s operations. The term “resolution” encompasses a wide range of actions that can be taken against a troubled bank. The central bank can intervene if it deems a bank non – viable, bankrupt, or in financial distress. To handle these matters, the Bangladesh Bank will establish a dedicated department.
To manage weaker banks effectively, the ordinance provides for the formation of bridge banks, which are temporary entities created by the central bank. These bridge banks can later be sold to third parties, and the central bank also has the authority to suspend or prohibit the business activities of a weak bank. A seven – member inter – institutional body, the Banking Sector Crisis Management Council, led by the BB governor, will be formed. This council will be responsible for formulating crisis – management strategies and contingency plans.
When it comes to bank liquidation, the ordinance stipulates that upon cancellation of a bank licence, the Bangladesh Bank will petition the court for liquidation. The court will then appoint a liquidator nominated by the central bank. Once the liquidation order is in effect, no interest or other charges will accrue on the bank’s liabilities. Banks can also undergo voluntary liquidation, but they cannot cease operations without prior BB authorisation. Deposits must be repaid within seven working days of the licence – revocation decision, and other liabilities within two months. This comprehensive set of rules and regulations is set to reshape the banking landscape in the country and safeguard the interests of depositors and the overall economy.
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