Govt plans to set up financial stability council

Bailing out failed banks one of the major functions

Shakhawat Hossain | Published: 22:33, Aug 05,2017

 
 

A file photo shows the front view of Karwan Bazar branch of scam-hit BASIC Bank in Dhaka. The government is planning to constitute a financial stability council aiming at tackling financial sector shocks like bankruptcy of public and private banks. — New Age photo

The government is planning to constitute a financial stability council aiming at tackling financial sector shocks like bankruptcy of public and private banks.
Officials said a meeting chaired by finance minister AMA Muhith on August 3 at the secretariat agreed in principle to constitute the FSC following a proposal from Bangladesh Bank.
The decision came against the backdrop of widespread loan scams in the country’s banking sector and providing of bailout funds to scam-hit public banks from the exchequer.
Finance Division secretary Hedayetullah Al Mamun, however, said the FSC has been proposed from a wider perspective of the country’s economy that is growing and getting more linked with the global economy.
The proposed FSC is imperative nowadays, he said.
He said many countries including India had already constituted such commission to tackle economic shocks stemmed out of local and international incidents.
Officials said BB deputy governor SK Sur Chowdury made the proposal for constitution of the FSC in a presentation he delivered during the meeting.
According to the presentation, the FSC will perform functions like bailing out banks and financial institutions, coordinating during crisis and managing financial stability.
Other functions of the FSC would be improvement of resolution regime for financial institutions and designation of macro prudential instruments.
Sur said there is a need for setting up an apex body to deal with crisis resolution, especially the decision on bailout of failed banks and financial institutions.
Economists have been suggesting long for appointment of a commission to find out flaws in the banking sector instead of giving bailout funds to the scam-hit banks like Sonali and BASIC from the budget.
BASIC Bank was given bailout fund of Tk 3,390 crore in last three fiscal years after it lost about Tk 6,000 crore to fictitious borrowers during the tenure of former bank chairman Sheikh Abdul Hye Bacchu.
State-owned BASIC Bank received more than Tk 3,000 crore bailout fund during the same period although it failed to recover a single penny after losing Tk 3,500 crore to little-known Hallmark Group in its single biggest loan scam detected in 2012-13.
Officials said Muhith agreed to lead the FSC, but observed that the FSC should be established at the Finance Division instead of the BB.
He directed to restructure the proposed working committees before finalising the proposal.
He also directed the BB to take opinions from the key ministries and divisions on the proposed FSC.
Officials expected that the final proposal on the FSC might be placed for approval before the Cabinet Division by the end of the current year.

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