TURBULENCE IN DISGUISE IN THE BANKING SECTOR CREATE PANIC WITHDRAWAL OF MONEY IN BANGLADESH

Özet

Bankers may find it difficult to get deposits from households as a result of financial market turmoil. Negative returns on bank assets cause creditors to worry about financial stability, causing them to exaggerate the possibility of a bank failure in the future and withdraw money from banks in a panic. This article provides a simplified alternative for building beliefs about panic withdrawal. By lowering asset prices and raising the cost of bank borrowing, banks’ balance sheet positions deteriorated, which caused worries for the depositors, who became panicked. This article discusses potential bank panic scenarios in Bangladesh due to several internal causes that vary countercyclically. Although the major issue confronting the banks was not illiquidity but rather insolvency due to a high percentage of nonperforming loans, bank supervisory authorities may respond to this panic situation by offering liquidity support, government policy intervention, ensuring good governance, limiting the number of withdrawals, and so on.

Abstract

Bankers may find it difficult to get deposits from households as a result of financial market turmoil. Negative returns on bank assets cause creditors to worry about financial stability, causing them to exaggerate the possibility of a bank failure in the future and withdraw money from banks in a panic. This article provides a simplified alternative for building beliefs about panic withdrawal. By lowering asset prices and raising the cost of bank borrowing, banks’ balance sheet positions deteriorated, which caused worries for the depositors, who became panicked. This article discusses potential bank panic scenarios in Bangladesh due to several internal causes that vary countercyclically. Although the major issue confronting the banks was not illiquidity but rather insolvency due to a high percentage of nonperforming loans, bank supervisory authorities may respond to this panic situation by offering liquidity support, government policy intervention, ensuring good governance, limiting the number of withdrawals, and so on.

Yazarlar

Rana Al Mosharrafa

Anahtar Kelimeler

Bank Panic, Public Confidence, Good Governance, Liquidity Crisis, Non-Performing Loan

JEL Codes

G21, G32, H12, G18

Yayın Bilgileri

Cilt 3, Sayı 1, 2023 · Sayfa 1-10

DOI: 10.52898/ijif.2023.1

Dosyalar