Thesis on An anatomy of central bank’s supervisory functions with special reference to Bangladesh Bank


Banking system now-a-days is integral to a country as it not only runs the payment mechanism but also it creates money. A banking institution is indispensable in a modern society. It also plays an important role in the economic development of a country. In recent times the banking sector over the world has been undergoing a lot of changes due to deregulation, technological innovation, globalization etc. Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This may be handled by either a government or non-government organization.

Regulation” refers to the rules that govern the behavior of financial intermediaries, and “Supervision” for monitoring and enforcement of the rules.

Bank regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines. This regulatory structure creates transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things. Given the interconnectedness of the banking industry and the reliance that the national (and global) economy hold on banks, it is important for regulatory agencies to maintain control over the standardized practices of these institutions.

The objective is to allow prudential guidelines, reducing systemic risk, protect banking confidentiality & allocating credit to favored sectors. Moreover it aims to reduce credit risk, country & transfer, market & interest risks, liquidity, operational, legal & reputational risks. Micro-prudential, Macro-prudential & Conduct-of-business supervision are carried out keeping in mind of the presence of a sound and sustainable macroeconomic policies, a well developed public infrastructure & effective market discipline & mechanisms for providing an appropriate level of systemic protection.

The mode of the supervision can vary from off-site surveillance to on site examination & supervision on a consolidated basis. The tools which are used for supervision are capital requirement, reserve requirement, corporate governance, financial reporting & disclosure, credit rating requirement & large exposure restrictions.
Bangladesh Bank as a Central Bank has a vital role in bank supervision in Bangladesh. For a safe and sound banking practice, enforcement of the laws must be strengthened,

a management information system for both off-site and on-site supervision is need to be developed and automated, regulatory frameworks must be separated, supervision requires enhanced coordination and cooperation among the regulators.
In order to have a strong economic environment, continuous monitoring and supervision are essential to the country’s banking industry because of its vital role in making payments as well as mobilizing and channelizing savings. Lack of confidence or poor performance can cause economic havoc. The global financial crisis is an important reminder of the damage that can emerge from a poorly managed and supervised financial system. A weak banking system can also be a major source of rent seeking and corruption. In recent times the banking sector over the world has been undergoing a lot of changes due to deregulation, technological revolution, globalization etc. Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This may be handled by either a government or non-government organization.

There is no denying the fact that the financial system plays a significant role in the economic development of a country. The importance of an efficient financial sector lies in the fact that, it ensures domestic resources mobilization, generation of savings, and investments in productive sectors. In fact, it is the system by which a country’s most profitable and efficient projects are systematically and continuously directed to the most productive sources of future growth. The financial system not only transfers funds from savers to investors: it must be able to select projects which will yield the highest returns, accumulate sufficient quantities of capital to fund the range of investment projects across economic activities, account for price risks across assets, monitor performance, and enforce contracts.

The banking sector of Bangladesh comprises four categories of scheduled banks. These are state-owned commercial banks (SCBs), state-owned development financial institutions (DFIs), private commercial banks (PCBs) and foreign commercial banks (FCBs). The number of banks remained unchanged at 47in 2011. These banks had a total number of 7729 branches as of December 2010.


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