In a blunt parting warning, outgoing Finance Adviser and former Bangladesh Bank governor Salehuddin Ahmed has called for stripping the central bank of bank supervision and creating an independent watchdog-immediately.
In a 29-page successor note to the Finance Ministry, Ahmed argues that the central bank cannot credibly conduct monetary policy while simultaneously policing commercial banks and finance companies. The dual mandate, he contends, breeds conflicts of interest, blurs accountability, and weakens transparency.
His recommendation is unequivocal: keep Bangladesh Bank focused on core functions-controlling inflation and steering monetary policy. Transfer supervision of commercial banks and non-bank financial institutions to a standalone authority with full enforcement powers.
"The central bank should limit itself to core central banking functions. They're not even able to do that properly," the note states, urging the creation of a separate supervisory office. The broader economy, Ahmed argues, will benefit from a clean institutional divide. The document calls on the government to grant policy approval and instruct the Financial Institutions Division to draft a concept paper. The message is clear: move from debate to design.
The proposal follows years of controversy over the central bank's oversight of commercial banks during the Awami League administration. Critics have questioned regulatory consistency, enforcement standards, and operational independence. The note suggests the problem is structural-not merely episodic.
Bangladesh Bank's primary mandate is to rein in inflation and align monetary policy with national economic priorities. Bank supervision-licensing, inspection, enforcement, and resolution-requires constant vigilance and institutional neutrality.
Combining the two, the note argues, dilutes both. Supervisory failures erode policy credibility; policy shifts risk politicizing regulatory decisions.
Several advanced economies-including the United States, the United Kingdom, and Japan-separate central banking from bank supervision. Others, such as India and the Philippines, retain unified structures. Ahmed's note makes clear which path he favours.
Beyond the institutional split, the paper proposes a dedicated Bank Resolution Authority to intervene before failing banks trigger systemic crises, and a Deposit Protection Corporation to safeguard depositors and restore trust. It also recommends a separate legal framework for Islamic banking to strengthen governance and clarify compliance standards.
The urgency is framed by sobering macroeconomic data. Cumulative inflation has surged 111 percent over the past decade. High interest costs strain public finances, while revenue mobilization remains weak. The note calls for disciplined debt management, rationalized subsidies, and tighter expenditure control. Yet it underscores a central premise: without a stable and credible banking system, broader fiscal reforms will falter.
Tax administration weaknesses-pervasive evasion, excessive exemptions, underdeveloped digital systems, and transparency gaps-are also flagged. Still, the proposed banking overhaul stands out as the most immediate institutional intervention.
Reform the supervisor. Protect depositors. Build a credible resolution regime. Let the central bank do central banking-and do it well.
