Controversial Law Lets Failed Bank Owners Reclaim Control

Bangladesh’s newly enacted Bank Resolution Act has triggered widespread debate after a contentious provision allowed former owners of distressed or merged banks to reclaim control under comparatively lenient financial conditions. The legislation, which replaces an earlier ordinance introduced during the interim administration, has been passed by parliament largely unchanged—yet a late inclusion has overshadowed its broader reform ambitions.

At the centre of the controversy is a newly inserted clause, commonly referred to as Section 18(a). This provision enables previous shareholders of banks placed under resolution to apply for reinstatement of ownership. Applications must be submitted to Bangladesh Bank, which serves as the designated resolution authority overseeing restructuring efforts within the financial sector.

Relaxed Financial Conditions Raise Alarm

The most debated feature of the law is the relatively low financial threshold required for ownership restoration. Former owners are required to deposit only 7.5 per cent of the total funds injected by the government or the central bank to rescue the bank. The remaining 92.5 per cent may be repaid within two years, subject to a simple interest rate of 10 per cent.

This provision has prompted strong criticism from economists and policy analysts, who argue that it significantly lowers the barrier for re-entry into the banking sector for individuals previously associated with mismanagement or financial irregularities.

Key Financial Terms of Ownership Restoration

Obligations Attached to Ownership Return

Applicants seeking to regain control must submit a formal undertaking outlining their commitments. These include:

• Full repayment of all financial assistance provided by the government and Bangladesh Bank
• Injection of fresh capital to restore financial stability
• Settlement of all depositor claims and third-party liabilities
• Payment of outstanding taxes and statutory dues

Despite these conditions, critics argue that the framework relies heavily on future commitments rather than immediate compliance, allowing controversial stakeholders to regain control before fulfilling their obligations in full.

Concerns Over Governance and Accountability

Financial experts have warned that the provision could undermine ongoing reform efforts aimed at stabilising the banking sector. A senior official from Bangladesh Bank, speaking anonymously, stated that the clause effectively enables former owners to “return at minimal cost”, potentially reversing progress achieved through recent restructuring measures.

There are also concerns that once ownership is restored, regulatory authorities may find it difficult to remove such individuals again, particularly given the complexities of legal enforcement in the banking system.

Background: Banking Crisis and Consolidation

The law comes in the wake of significant turbulence in Bangladesh’s financial sector. Several struggling banks—including EXIM Bank, Social Islami Bank, First Security Islami Bank, Union Bank, and Global Islami Bank—were merged into a single entity, commonly referred to as Combined Islami Bank.

This consolidation followed prolonged financial instability, during which these institutions failed to meet depositor obligations. The government intervened with substantial financial support and placed the merged entity under administrative control.

Financial Snapshot of the Merged Entity

Legislative Dispute and Last-Minute Inclusion

Sources suggest that the controversial clause was not part of the draft initially reviewed by a 10-member committee comprising officials from the finance ministry, legal division, and Bangladesh Bank. The provision was reportedly inserted shortly before the bill was tabled in parliament.

Committee members had previously recommended stricter safeguards, including full repayment of liabilities before ownership restoration and permanent disqualification of those responsible for financial misconduct. These recommendations were not fully reflected in the final legislation.

Broader Powers and Reform Objectives

Aside from the disputed clause, the Act grants extensive authority to Bangladesh Bank to manage failing banks. These powers include appointing administrators, increasing capital, transferring assets and liabilities, establishing bridge banks, and initiating liquidation where necessary.

While these measures are considered essential for crisis management, the controversy surrounding ownership restoration has overshadowed the law’s broader reform agenda.

Public Reaction and Future Outlook

Public response has been largely critical, with many expressing concern that allowing previously discredited owners back into the system could erode trust in the banking sector. Critics argue that such provisions risk undermining accountability and may expose depositors to renewed financial instability.

Economists stress that sustainable reform requires not only robust regulatory frameworks but also firm consequences for past misconduct. Without these, they warn, the new law could inadvertently encourage reckless financial behaviour.

As the law comes into effect, attention will now turn to how Bangladesh Bank implements the provision in practice. The coming months are expected to be decisive in determining whether the legislation strengthens the financial system or deepens existing vulnerabilities.