TIB Warns Bank Law May Rehabilitate Failed Owners

The introduction of Bangladesh’s new bank resolution framework has sparked significant debate, with Transparency International Bangladesh (Transparency International Bangladesh) issuing a strong warning that provisions allowing former owners of failed banks to regain control could undermine financial sector reform and reopen the door to past governance failures.

In a statement issued on Monday (13 April), the anti-corruption watchdog described the inclusion of clauses permitting previous shareholders of merged or distressed banks to return to ownership structures as “self-defeating”, arguing that the measure could weaken long-term stability in the banking system.

Concerns Over Reinstatement of Former Owners

TIB cautioned that the revised Bank Resolution Act creates a pathway for individuals or groups previously linked to mismanagement in troubled financial institutions to re-enter ownership roles. The organisation argued that such a mechanism risks reversing progress made in restoring discipline within the sector and could potentially revive conditions that enabled corruption and asset stripping in the past.

According to the organisation, rather than strengthening accountability, the framework may inadvertently institutionalise impunity by allowing previously responsible parties to re-establish influence under regulatory oversight.

Shift from Earlier Legal Framework

The group highlighted a notable departure from the earlier Bank Resolution Ordinance 2025, which reportedly prohibited former owners of failing banks from regaining control, even in cases where outstanding liabilities were settled.

Under the new legislation, a revised provision—identified as Section 18(a)—allegedly modifies this restriction, enabling former stakeholders to return under defined conditions. TIB argues that this shift replaces stricter accountability safeguards with a more permissive reinstatement model.

Financial Structure and Governance Concerns

TIB Executive Director Dr Iftekharuzzaman criticised the structure of the policy, stating that it could effectively reward individuals previously associated with financial misconduct rather than ensuring meaningful accountability.

He also raised concerns over the financial terms attached to reacquiring ownership stakes, noting that the framework reportedly allows for a limited upfront payment with the remainder spread over time under concessional arrangements. According to him, such provisions raise serious questions regarding fairness, enforcement capacity, and long-term sustainability.

Key Issues Highlighted by TIB

Questions Over Regulatory Oversight

The organisation further questioned how effectively compliance with post-recovery conditions could be enforced, citing concerns about the independence and capacity of regulatory institutions. It warned that oversight weaknesses could create loopholes allowing influential actors to restructure obligations in ways that ultimately transfer financial risks to depositors and the wider economy.

TIB also cautioned that such arrangements could undermine confidence in the banking sector by blurring the line between accountability and rehabilitation.

Broader Governance Concerns

Dr Iftekharuzzaman suggested that the legislative change reflects a broader governance pattern in which structural reforms do not necessarily translate into stronger accountability. He argued that shifts in institutional control alone are insufficient if they do not prevent the re-emergence of previously problematic ownership structures.

He further linked the current framework to earlier contested decisions in the financial sector, emphasising that meaningful reform must prioritise enforcement, transparency, and exclusion of actors responsible for systemic failures.

Call for Stronger Accountability Measures

TIB stressed that any credible banking reform must ensure transparent legal processes, strict enforcement of financial obligations, and clear disqualification of individuals linked to major banking failures. Without such safeguards, the organisation warned, the reform agenda risks failing to deliver substantive improvements in governance.

Outlook

The debate surrounding the Bank Resolution Act highlights a broader tension between financial stabilisation and governance accountability in Bangladesh’s banking sector. While policymakers argue that restructuring mechanisms are necessary to protect depositor interests and maintain systemic stability, critics caution that insufficient ownership restrictions could undermine long-term reform efforts.

As implementation moves forward, regulatory authorities are expected to face increasing scrutiny over how effectively they balance crisis management objectives with the need to uphold institutional integrity and prevent a repeat of past failures.