FE Report
Amiya Kumar Bagchi, a renowned Indian economist, has suggested that banks should not be allowed to be involved in the 'risky businesses' under stock market.
"Ethical banking requires both the ability of bankers to exercise discretion on the one hand and constraints on the freedom of bankers to acquire assets and enter into risky businesses, such as investment in the casino of stock markets on the other hand, Dr. Bagchi said while delivering fourteenth Nurul Matin Memorial Lecture on Ethics in Banking in the capital on Monday night.
He also said these constraints have to be imposed by properly constituted public authorities, especially the central bank and the ministry of finance, working under the oversight of a democratically elected government.
"Ethical banking requires decentralised relationship banking and strict separation of banks and stock markets, on the lines of the Glass-Steagall Act or the system prevailing in South Asia before 1947," the senior economist noted.
He also said the equivalent of a Glass-Steagall Act should be passed by every country seeking to get on to a path of sustained economic and human development. "The conscious promotion of SMEs by providing them with adequate banking facilities should be part of this strategy."
Professor Nurul Islam, deputy chairman of first Planning Commission of Bangladesh, supporting Dr. Bagchi, said that in Bangladesh there is no need to encourage stock market development now. "Rather we should work to strengthen banking sector to finance long- term development," Dr. Islam said while addressing the occasion as chief guest.
In this connection the renowned economist referred to development experience of East Asia as well as European countries.
The Bangladesh Institute of Bank Management (BIBM) organised the lecture on 'Ethics in Banking' in which the country's eminent economists, bankers and policy makers took part.
AFM Nurul Matin, a reputed banker, was the deputy governor of the central bank of Bangladesh. He played an important role in preparing Bangladesh Bank Nationalisation Ordinance, 1972. He died on February 23, 1978.
Describing success stories of different East Asian countries, Dr. Bagchi said there should be a development banking sector supported and carefully monitored by the government, which should insulate it from political by imposing strict penalties for transgression.
"….I would argue that developing countries should abandon the model of so-called universal banking, which many of them were persuaded or coerced into adopting by the pressure of domestic and foreign finance companies."
Ethical banking, following the footsteps of Nurul Matin, will require the conscious flouting of Eichmannish norms of behaviour, according to the Indian senior economist. "All countries need a regulatory framework, overseen by a substantive and procedural democratic system (and not one that money can buy), so that every ethical banker is not forced to become a martyr."
Dr. Bagchi is Emeritus Professor, Institute of Development Studies, Kolkata and Adjunct Professor, Monash Asia Institute, Melbourne, Australia.
His contributions have spanned economic history, including the history of banking and finance, the economic of industrialisation and deindustrialisation, and development studies from an overall Marxist and left Keynesian perspective, incorporating insights from other schools of radical political economics.
Bangladesh Bank (BB) Governor Atiur Rahman said Dr. Bagchi deftly portrays the largely bygone positive trends of relationship based SME, agricultural and industrial financing both in the West and East; side by side with the recent excesses of deregulated financing triggering recent crises in financial and real sectors in many advanced economies.
"Dr. Bagchi's important contribution challenging the received wisdoms from mainstream deregulated financing orthodoxies resonate very well with our approach in Bangladesh and elsewhere of mainstreaming socially responsible inclusive and environmentally sustainable financing; focused particularly on environmentally benign 'green' output initiatives, including in agriculture and SMEs," the central bank chief noted.
The BB governor presided over the function while Director General of the BIBM Dr. Toufic Ahmad Choudhury delivered the address of welcome.
siddique.islam@gmail.com
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