In an echo of 2009, the central bank is again facing hostility for stepping up its measures against banks' excessive exposure to the capital market.
Bangladesh Bank on February 25 instructed banks to give a breakdown of daily investments in stocks in the monthly report submitted to the central bank on the 10th of every month.
At present, the banks just give their total investment figure to BB, which the central bank believes does not reflect the true picture.
BB found that many banks tend to invest heavily for the best part of the month and cut back toward the end to give BB the impression that their stockmarket exposure was not excessive.
The Banking Companies Act stipulates that banks cannot invest more than 25 percent of their total capital in stocks, and the central bank gave them until July 2016 to bring down their exposure.
As of December last year, banks and their subsidiaries' exposure stands above 50 percent of their capital on average. It stands at 150 percent for many.
However, the notice has not been well-received particularly by Bangladesh Securities and Exchange Commission that argued that it would create panic among the investors and destabilise the market.
Senior officials of BB and BSEC engaged in a heated argument during a regulatory meeting on Sunday, according to a source who was present.
After the meeting, BB Deputy Governor SK Sur Chowdhury told reporters that the central bank would bring some changes to the notice.
However, a BSEC commissioner told The Daily Star yesterday that they were not opposing the central bank's steps.
“We told the central bank that it can discuss with the BSEC before issuing notices on banks' exposure to the stockmarket and report submission on daily trading,” he said.
He explained that the stockmarket is a sensitive place, so any regulatory notice may create panic among retail investors at a time when the secondary market is trying to recover from the losses of 2011's market crash.
Amzad Hossain, a member of the BSEC, when contacted by The Daily Star, said the central bank assured the commission that it would revise the decision.
Ibrahim Khaled, who led the government probe into the stockmarket crash in 2011, said as per law it is the central bank's responsibility to monitor the exposure of the banks for the sake of depositors and retail investors.
“If the monitoring is relaxed as a result of bowing down to pressure, then it would create the situation we saw in 2009.”
The former deputy governor also said the BSEC's objection is “not logical”. “If the stock-market is run properly it will restore the confidence of the public in the market.”
Khaled also said after the introduction of demutualisation the indexes dropped for a few days but the market has again stabilised.
“It means that any well-intended measure always brings good results.”
When the Awami League grand alliance government came to power in 2009 the stockmarket was scaling new heights.
Seeing the huge gains to be made, banks invested aggressively in stocks by breaching rules.
It prompted Bangladesh Bank to take measures to rein in the bubble, but the central bank had to back off following pressure from influential quarters in the capital market.
The market eventually crashed. But what was most ironic was that those who had initially barred the central bank from taking steps aimed at controlling the bubble blamed it for not doing enough to prevent the crash.