Thrust on splitting merchant, conventional banking

Speakers at a seminar in the capital Friday emphasised separation of merchant banking from conventional banking to ensure smooth functioning of the country's financial institutions (FIs).
They also called for taking prudent measures for ensuring greater coordination among the financial and capital market regulators.
These observations came up from the seminar titled 'Economic Rationale for the Separation of Conventional and Merchant Banking'. Bangladesh Young Economists Association (BYEC) and Emerging Credit Rating Limited jointly organised the programme at Institution of Diploma Engineers, Bangladesh (IDEB).
BYEC President Badrul Monir moderated the discussion, where State Minister for Finance and Planning M A Mannan was present as the chief guest.
The discussants said there should be an official fact-finding study to asses the impact of the conventional banks' participation in merchant banking operation on the stock market debacle of 2010 and its impact on the economy and GDP (gross domestic product) growth.
Presenting the keynote paper, Bangladesh Economic Association Vice-President Dr Jamaluddin Ahmed, FCA, said the evidence suggests that a universal banking system does not necessarily lead to more profitable banking.
But there is no unanimous evidence showing that separation of commercial and investment banking would be more beneficial for the society, he also said.
He suggested conduction of a thorough research and study in this regard.
"We must remember that we're in transition from command to market economy. We're developing our institutions for capital market, we moved to bank financing, and now we're moving to equity and bond financing," he said.
Terming the US the engine of capitalist development in modern economic history since the Second World War, he said the country separated conventional and merchant banking after the recession of 1933 by enacting the GSA (Glass-Steagall Act).
"Other developed countries of Europe took the move much later. Bangladesh also responded to the call since 2009, accommodating the latest developments nationally and internationally," he added.
State Minister for Finance and Planning M A Mannan said the wind of change has started blowing over both money and capital markets, as the government has taken various initiatives to take the country's economy ahead.
He also sought cooperation and timely suggestions from the local economists, including the young ones, which will help him in taking right decisions.
Bangladesh Securities and Exchange Commission (BSEC) Commissioner Professor Helal Uddin Nizami said separation of merchant banks from traditional banking could be helpful in identifying key issues, like - moral hazards, conflict of interest, diversification and its impact upon risk.
Mentioning various reasons behind the 2010 share market debacle, he said they have brought overwhelming changes in the functions and regulations of the regulatory body over the last three years.
"The country's capital market has now become a stable one because of such reform activities," he claimed.
Bangladesh Bank Deputy Governor Abu Hena Md Razi Hasan said there was lack of coordination in the activities of the central bank during the debacle, but the problem has been overcome now.
"Now, the regulators like BB and BSEC sit once in every three months to asses the functioning of the country's financial institutions," he added.
Among others, Bangladesh Institute of Capital Market Executive President Abdul Hannan Joarder and BYEC General Secretary A K M Kamrul Ahsan also spoke on the occasion.  
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