Keeping central bank free from undue influence

Uncompromising, honest and knowledgeable regulatory body is a vital requirement for disciplined and incorruptible financial institutions. In the midst of limitless corruption everywhere, the Bangladesh Bank has emerged as one of the few institutions of the country which are upholding honesty, integrity at its best and performing its  responsibilities with skill as a regulatory authority and as the guardian of the financial institutions.
Compliance on financial regulatory issues is highly important for the economy of a country. We know that banks and many non-bank financial institutions accept money from depositors through various mechanisms and invest it in businesses as their assets. For keeping the depositors' money safe, making the lending process proper and secured and managing liquidity and profitability skilfully are key matters to be considered by each and every financial institution.
People always run after money and wealth. Some people want to become rich overnight and make money by any means with little efforts. During the last 25 years, the culture of becoming wilful defaulter has flourished alarmingly. A significant number of businessmen or entrepreneurs are not utilising the funds taken from banks and divert those to various unproductive sectors. In this scenario, lack of proper monitoring, supervision, proper project appraisal, appropriate process in selection of clients and some other key issues are playing vital roles in leading the clients to a state of default.
Negligence of some financial institutions in monitoring, supervision, project appraisal and client selection favours some dishonest businessmen for becoming wilful defaulters. They are also not serious in many compliance issues. But most of other scheduled banks and financial institutions are very much serious and give maximum priority to abide by all sorts of instructions and guidelines given by the central bank from time to time.
Any type of undue efforts in covering up financial irregularities and keeping the culprits untouched will create the worst instance and inspire many others to commit the same crime again and again which would ultimately lead to complete anarchy in the financial sector.
For safeguarding depositors' money lying in the financial institutions and building a strong capital base, the recommendations of the Basel Committee on Banking Supervision (BCBS) is under implementation all over the world. The implementation of the updated recommendations of the BCBS gained pace after the devastating financial meltdown in the Western rich countries, especially in the USA a few years back. The financial institutions of our country are also under immense pressure to implement three pillars of Basel-III, such as maintaining minimum capital requirement, strong and rigorous supervisory review process and upholding market discipline at any cost under the proper guidance of the BB.
Our central bank has a good reputation in playing its role as the regulatory authority and guardian of financial institutions. Overcoming many political and undue pressures, they are trying their best to remove most of the irregularities in the financial institutions of the country. Nevertheless, they have to face immense political pressure in taking action and corrective measures against some big irregularities in the financial sector. Here we can mention the case of Hallmark scandal, BASIC bank's big financial irregularities and the fraudulent activities of the Destiny multi- level marketing.
Even a single bad investment or small irregularities could lead a financial institution to a state of bankruptcy and could also make the capital base vulnerable. As a by-product of a bad investment, there comes provisioning, effect on capital base, less profit, fall of share value, damage of business reputation and beyond.
Regulatory issues regarding financial institutions are very much sensitive and important for smooth and steady growth of the economy of a country. So monitoring, supervision and disciplinary action taken by the central bank on the FIs must be kept out of all sorts of undue influence, political pressure, bias, nepotism and favouritism for maintaining overall discipline in the economy, making the asset quality better, safeguarding depositors' money, building confidence among investors and ordinary depositors. All stakeholders, pressure groups and above all the government should co-operate with the BB to perform its responsibilities properly, confidently, honestly and freely.
The writer works at a private commercial bank.
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