Tk40,000cr resolution fund planned for banks if in trouble
Banks will have to contribute up to 0.25% of their deposits annually
The Bangladesh Bank plans to create a dedicated "resolution fund" of up to Tk40,000 crore to rescue and restructure failing banks without relying on taxpayer-funded government bailouts.
Banks will have to contribute an annual premium of up to 0.25% or 25 paisa per Tk100 of their deposits, compared to the current 0.07% charged for the deposit insurance protection fund. Over time, the fund is expected to accumulate between Tk30,000 crore and Tk40,000 crore, enabling the central bank to intervene independently when banks face serious financial trouble.
In an interview with The Business Standard, Bangladesh Bank Governor Ahsan H Mansur said the initiative is inspired by the European Central Bank's resolution framework, under which banks deposit a portion of their deposits (approximately 1%) into a separate fund specifically for bank resolution.
"Bank resolution is a continuous process. That is why we have created a separate Bank Resolution Department," he said, explaining that the department continuously monitors banks and financial institutions, flags early signs of weakness, and intervenes when necessary through restructuring, mergers, or orderly liquidation.
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The governor noted that five banks are currently under resolution, a process made possible only because the government provided around Tk20,000 crore in support.
Alongside the move, the Bangladesh Bank has decided to liquidate nine non-bank financial institutions (NBFIs), the governor said. As these entities are not covered by the deposit insurance protection fund, the government will provide Tk5,000 crore to repay individual depositors, he said.
The governor explained how the resolution fund will be built gradually. "If we raise the premium from 7 paisa per Tk100 of deposits to around 25 paisa, we can mobilise nearly Tk30,000 crore within five years. Once the fund becomes strong, provisioning requirements can be reduced."
Under the amended deposit insurance ordinance 2025, insured banks are required to deposit a premium of 0.07% per annum on their deposits. The new law states that the Bangladesh Bank will set the premium from time to time based on the bank's risk level and the size of deposits.
At the same time, banks and financial institutions will face penalty interest at the bank rate if they fail to pay the premium on time. The Bangladesh Bank will prevent the banks and financial institutions from accepting deposits that fail to pay the premium twice in a row.
How resolution fund to be operated
According to the Bank Resolution Ordinance, 2025, a bank restructuring and resolution fund will be established in order to achieve the objective of the resolution and effective implementation of the resolution measures.
It states that the Bank Restructuring and Resolution Fund will have a prudent and safe investment strategy and will invest the amounts held in the fund in obligations of the government.
The ordinance mentions that the Bangladesh Bank shall prescribe the rules governing such fund, including the power to manage, administer, and supervise the Bank Restructuring and Resolution Fund; formulate policies in relation to the general administration of the Bank Restructuring and Resolution Fund; and contribute to the financing of resolutions of scheduled banks from the Bank Restructuring and Resolution Fund.
What experts say
Experts have expressed mixed reactions to its long-term impact on banking discipline.
Muhammad A (Rumee) Ali, former deputy governor of Bangladesh Bank, cautioned that the fund could end up subsidising poor governance and weak risk management, as well-run banks would effectively support weaker ones.
However, Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, welcomed the move, saying it would reduce pressure on taxpayers. He noted that similar mechanisms were introduced in Europe and the United States after the 2007 global financial crisis.
"Such a fund discourages risky lending and encourages responsible behaviour, even though some cost may be passed on to depositors," Mustafizur said.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, described the plan as aligned with global norms but warned that its success would depend on broader reforms. "With high non-performing loans, weak enforcement and political interference, the fund risks becoming symbolic unless governance, transparency and supervision are strengthened," he said.
Mahbubur added that the proposed levy is far lower than the ECB's 1% benchmark, raising concerns about its adequacy in a crisis. "Still, if transparently managed and scaled over time, it could be a solid starting point for building financial resilience."
Sohail RK Hussain, managing director of Bank Asia, also termed the initiative a positive and necessary step. "A resolution fund based on global best practices will strengthen financial stability and reduce reliance on taxpayer support," he said, stressing the need for gradual, transparent and risk-based implementation alongside deeper banking sector reforms.
"The proposed 0.25% annual cap, including insurance premium, is reasonable, especially considering the challenges the industry is facing," Sohail said.
He emphasised that the fund will be established on a transparent and risk-based basis.
"However, this should go hand in hand with the banking sector reform proposal, addressing governance failures of the past," the Bank Asia MD added.
