Creating a More Efficient Financial System : Challenges for Bangladesh

While Bangladesh has embarked on a path to reform its financial system, most prominently by privatizing its government-owned banks, the Nationalized Commercial Banks (NCBs), a sustainable long-term expansion of the financial system requires a more substantial change in the role of government. Using recent research and international comparisons, this paper argues that the government should move from its role as an operator and arbiter in the financial system to a facilitator role. This implies not only divestment from government-owned banks, but also de-politicization of the licensing process and a market-based bank failure resolution framework that focuses on intermediation and not on the rescue of individual institutions. Most important, the government should move away from the implicit guarantee for depositors and owners to applying the existing limited explicit deposit insurance for depositors, while simultaneously relying more on market participants to monitor and discipline banks instead of micro-managing financial institutions. This redefinition of government's role should not be limited to the banking system, but applies to other segments of the financial system, such as capital markets and the micro-finance sector, and should be seen as an essential element in the governance reform agenda and in the movement from a relationship-based economy to a market and arms-length economy.

Bibliographic Details

Main Authors:	Rahman, Md. Habibur, Beck, Thorsten
Language:	English
Published:	World Bank, Washington, DC 2006-06
Subjects:	ACCOUNTING, ACCOUNTING STANDARDS, ADB, ADVERSE SELECTION, AGRICULTURAL BANKS, AGRICULTURE, AUDITING, AUTOREGRESSION, BALANCE SHEETS, BANK ACCOUNTS, BANK BRANCHES, BANK DEPOSITS, BANK FAILURE, BANK FAILURE RESOLUTION, BANK LOANS, BANK RUNS, BANKING CRISES, BANKING SECTOR, BANKING SERVICES, BANKING SYSTEM, BANKRUPTCY, BANKRUPTCY COURTS, BANKS, BENCHMARK, BENCHMARKING, BORROWING, BROKERS, CAPITAL MARKETS, CAPITALIZATION, COMMERCIAL BANKS, COMPANY, COMPETITIVENESS, CONFLICTS OF INTEREST, CONSUMER PRICE INDEX, CONTROLLING SHAREHOLDER, CORPORATE DECISIONS, CORPORATE GOVERNANCE, CORPORATIONS, COUNTRY COMPARISONS, DEBT, DEPOSIT ACCOUNTS, DEPOSIT INSURANCE, DEPOSITS, DIVESTMENT, DIVIDENDS, EARNING ASSETS, ECONOMIC GROWTH, EMPLOYMENT, EXCHANGE COMMISSION, EXPECTED RETURN, EXTERNAL FINANCING, FINANCIAL CONTRACTS, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIARIES, FINANCIAL INTERMEDIARY DEVELOPMENT, FINANCIAL INTERMEDIATION, FINANCIAL MARKETS, FINANCIAL REGULATION, FINANCIAL REPORTS, FINANCIAL SECTOR, FINANCIAL SERVICES, FINANCIAL STATEMENTS, FINANCIAL SYSTEMS, FINANCIAL TRANSACTIONS, GDP PER CAPITA, GROWTH RATE, HUMAN CAPITAL, INCOME, INCORPORATED, INDIVIDUALS, INFLATION, INFLATION RATE, INFLATION RATES, INITIAL PUBLIC OFFERINGS, INSIDE INFORMATION, INSTITUTIONAL INVESTORS, INTEREST COSTS, INTEREST RATE, INTEREST RATES, INVESTMENT ACTIVITIES, INVESTMENT ACTIVITY, INVESTMENT PROJECTS, IPOS, JOINT STOCK COMPANIES, LEGISLATION, LENDING PRACTICES, LEVEL PLAYING FIELD, LIMITED, LIMITED LIABILITY, LIMITED LIABILITY COMPANIES, LIQUIDATION, LIQUIDITY, M2, MACROECONOMIC STABILITY, MARKET DISCIPLINE, MICROFINANCE, MINORITY SHAREHOLDER, MINORITY SHAREHOLDERS, MORAL HAZARD, MUTUAL FUND, MUTUAL FUNDS, NATIONALIZED BANKS, OPERATING COSTS, OVERHEAD COSTS, PAYOUT, PER CAPITA INCOME, PORTFOLIO, PRINCIPAL-AGENT, PRINCIPAL-AGENT PROBLEMS, PRIVATE COMMERCIAL BANKS, PRIVATE EQUITY, PRIVATE PENSION, PRIVATE PROPERTY, PRIVATIZATION, PROPERTY RIGHTS, PROTECTION OF MINORITY SHAREHOLDER, PUBLIC FIRMS, RATE OF RETURN, REAL GDP, REGULATORY CAPTURE, RESOURCE ALLOCATION, RETAINED EARNINGS, SAVINGS, SAVINGS SCHEMES, SECURITIES, SHAREHOLDER RIGHTS, SOCIETY, SOUTH ASIAN, STATEMENTS, STOCK EXCHANGE, STOCK MARKET, STOCK MARKETS, STOCK PRICE, STOCKS, TIME DEPOSITS, TOTAL COSTS, TRADABLE SECURITIES, TRANSACTION COSTS, TRANSPARENCY, WEALTH, WORKING CAPITAL,
Online Access:	http://documents.worldbank.org/curated/en/2006/06/6840063/creating-more-efficient-financial-system-challenges-bangladesh https://hdl.handle.net/10986/8441
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