Can the Bank Resolution Bill be a good start for banking sector reform?

On 10 April, Bangladesh's parliament passed the Bank Resolution Bill 2026 by voice vote. In doing so, the government signalled a decisive shift away from a decades-old playbook: rescuing failing banks with public money.

Yet, as opposition lawmakers warned during the session, the real test of this legislation will not lie in its design but in its execution—particularly in a financial system where governance failures, political interference, and regulatory weakness have long defined outcomes.

At its core, the Act is an attempt to redraw the moral contract between the state, banks, and depositors. Whether it succeeds depends on a deeper question the law itself does not fully resolve: who ultimately controls the banking system, and in whose interest?

Ending the bailout era

Bangladesh's banking sector has for years been weighed down by mounting non-performing loans and repeated recapitalisation of weak banks using taxpayer funds. The implicit doctrine of "too big to fail" has created a system where private gains are routinely socialised.

The new law attempts to break that cycle. By introducing a "Resolution Window", it shifts the burden of rescuing distressed banks from the public purse to private capital, mergers, and internal restructuring mechanisms. The creation of a resolution fund and a dedicated resolution department within Bangladesh Bank reflects a move towards a rules-based crisis management framework.

In principle, this aligns with global best practices adopted after the 2008 financial crisis. Tools such as "bridge banks", temporary transfers of assets and liabilities, and forced mergers are now standard in many jurisdictions. This is a step towards reform. 

Syed Mahbubur Rahman, MD and CEO of Mutual Trust Bank PLC, said, "This is a good initiative to merge the weak banks and increase Bangladesh Bank's regulatory oversight. Even though it relies on implementation, it is better to have a framework to work upon." 

The accountability paradox

One of the Act's headline features is the provision to hold individuals personally liable for bank failures, with penalties of up to Tk50 lakh and additional daily fines. On paper, this marks a departure from the culture of impunity that has characterised the sector.

In practice, however, the scale mismatch is glaring.

"In an economy where single loan defaults can run into thousands of crores, a Tk50 lakh penalty risks being perceived less as a deterrent and more as a transactional cost," said Mahtab Uddin, Research Director of SANEM and Assistant Professor in the Department of Economics at the University of Dhaka, "While the scale of corruption tips into thousands of crores, this amount is just a slap on the wrist." 

This is where the opposition's "looter's escape" argument gains traction. If politically connected borrowers and shadow stakeholders continue to operate beyond formal accountability structures, even the most sophisticated resolution tools will fail to deliver justice.

In an economy where loan defaults run into thousands of crores, a Tk50 lakh penalty risks becoming just a cost of doing business.

Mahtab Uddin, Research Director at SANEM and Assistant Professor of Economics at the University of Dhaka

The introduction of the "bridge bank" concept illustrates this tension. Internationally, it is a powerful mechanism—allowing viable parts of a failing bank to continue functioning while toxic assets are isolated. But its effectiveness depends entirely on the integrity of asset valuation, transparency in transfer, and insulation from vested interests.

Depositor protection: Promise versus reality

The government has emphasised that the Bill prioritises depositors, placing them at the top of the repayment hierarchy and providing compensation if resolution outcomes are worse than liquidation. The bill has the proposal to double the deposit insurance coverage, increasing it from the current Tk100,000 to Tk200,000 per depositor. 

However, even if insurance limits are expanded as has been discussed, the protection may still fall short of covering the life savings of ordinary citizens. More critically, depositor confidence is not built on legal clauses alone. It rests on trust in institutions.

"If depositors believe that politically connected actors can still influence outcomes, delay resolutions, or extract value ahead of ordinary savers, the formal prioritisation of deposits may offer limited reassurance. For this, regulatory oversight has to be ensured first," said Mahtab Uddin.

The question of central bank autonomy

The Bank Resolution Bill expands the central bank's powers significantly—allowing it to suspend bank operations, dissolve boards, appoint administrators, and restructure institutions. These are extraordinary authorities, necessary for crisis management. 

Mahtab Uddin said, "The new act has strengthened the Central Bank for sure. Now, we need to see how it is implemented in reality. The outcome will depend on the implementation." 

But they also concentrate immense discretion in an institution that is not fully independent.

Under the existing legal framework, key appointments within Bangladesh Bank—including the governor and board members—remain under government control. The government retains the ability to override decisions, influence policy direction, and, in practice, shape regulatory outcomes.

Mamun Rashid, chairman at Financial Excellence Ltd and founding managing partner of PwC Bangladesh, said, "The Central Bank is extraordinarily dependent on the Finance Ministry. Hence, they are yet to build their capacity. The Central Bank should be allowed to operate freely. It is important for their accountability as well, because without it, they would not acknowledge their shortcomings and just blame it on the decisions of the ministry." 

During the interim government, the then BB governor Dr Ahsan H Mansur pushed for greater autonomy. Then, the then finance adviser Dr Salehuddin Ahmed rejected a proposal to amend the Bangladesh Bank Order, 1972 to ensure full autonomy of Bangladesh Bank. He returned the draft ordinance without approving it.

Back then, in a letter sent to the governor, the finance adviser clearly stated that it would not be realistic for the current interim government to introduce extensive amendments to a foundational law governing an institution such as the central bank. Instead, he suggested that it would be more appropriate for the next elected government to review the order and undertake amendments in the future, as necessary.

The official argument was that, given that the Bangladesh Bank Order, 1972, is a fundamental law underpinning the country's central banking system, any amendments must be thoroughly reviewed and discussed with key stakeholders and experts before being adopted. 

M Mashrur Reaz, Chairman and Founder of Policy Exchange Bangladesh, said, "The Bangladesh Bank Order (Amendment), 2025, was necessary for greater autonomy for BB. The interim government could not implement it. I think the way the BB sent the order and the political leadership in the administration were not on the same page. At that time, there was less chance of cronies or negative stakeholders influencing the administration. Some changes may not have consensus then. But both sides should have come to an understanding to resolve the differences and pass the order for the betterment of the financial sector."  

"A resolution requires a regulator that can act decisively, impartially, and crucially without political interference. Without such independence, the risk is that resolution decisions themselves become politicised, selectively applied, or delayed to protect influential interests. So, these appointments need to be based on merits and expertise, not on political preferences or cronyism, like the previous regime," said Mahtab Uddin.