Bank depositors are fortunate they have a regulator like the Bangladesh Bank (BB). The regulator maintains constant watch on every bank. Notwithstanding such vigilance, some banks start showing signs of management weaknesses, leading to erosion in their financial health. In the event of worsening of the situation, the central bank appoints observers for errant banks, who attend meetings of the banks' boards and maintains watch on the operations of the banks concerned. And in extreme cases, the money market regulator appoints administrators replacing the managing directors or chief executive officers (CEOs) of banks.
The central bank does all these interventions as it is legally mandated to do so. The Bangladesh Bank Order and the Bank Company Act have empowered the BB to act as the regulator of banks and other financial institutions and also as the protector of depositors' interest. In the case of collapse or liquidation of a bank, the central banks would partially compensate the depositors. However, a bank hardly faces liquidation these days. It only happens in very extreme cases.
Unfortunately, the general investors of listed companies are not that lucky. If a listed company is delisted or liquidated, they get nothing. None is there to help them. There is a regulator, named, the Bangladesh Securities and Exchange Commission (BSEC), for the capital market. But the investors facing loss of capital due to delisting or liquidation of a listed company usually do not get any sort of support from the regulator.
A good number of listed companies over the years have gone busted and investors concerned lost their money in the process. Some delisted issues are being traded on the over-the-counter (OTC) market. But investors virtually get nothing from there.
But that should not have been the case. The investors do deserve protection from the regulator concerned the way the banking sector regulator extends the same to the depositors. And such protection is very much logical.
The central bank has a strong and well-knit monitoring and supervision system for the banking industry. The banks are required to send reports on almost everything to the central bank. Automation has made things rather easy for doing this type of work. The banking sector regulator particularly keeps its watchful eye on banks' lending operations. Selection of borrowers is the most tricky and vital job on the part of the bankers. Gross mistakes and deviation from norms in lending operations could land the banks in serious troubles.
It is none but the Bangladesh Bank grants licences to banks to carry out baking operations in the country. So, it is expected that it would do the necessary scrutiny and review of the sponsors concerned before offering such licences. As the provider of licences, the onus lies with the central bank to protect the depositors' interests. It is one of the basic responsibilities of the central bank.
Similarly, it is none but the BSEC allows companies wanting to go public and mobilise funds from the investors, general or otherwise. The capital market regulator is supposed to allow a company to float its shares for public subscription after thoroughly examining all the documents, including financials, submitted by it. If all the public issue rules are strictly adhered to, it is quite difficult for any company with questionable fundamentals to get listed on the country's bourses. Yet many companies with weak basics manage to sneak into the market because of lapse, deliberate or otherwise, on the part of the regulator.
It was the mid 1990s when a good number of companies, including green field ones, managed regulator's approval to float initial public offerings (IPOs). The market got overheated with investors coming from all over the country. However, most of these investors were ignorant and came to the market to become rich overnight. But most of them got their fingers burnt. This was the time when a section of unscrupulous sponsors of a number of companies with the help of an indulgent regulator had floated IPOs to fleece the investors and they were extremely successful in their bids.
The fact remains that none but the poor investors, ultimately, have to pay price for wrong selection of companies. However, investment in stock market does always carry certain risk elements and investors are aware of it. The risk element is more in the case of investment in secondary market. Generally, putting money in primary shares is considered safe and more rewarding. But if a listed company goes bust, both types of investors suffer financial loss.
What is expected from the BSEC is strong monitoring and supervision of the operations of the listed companies. It needs to ensure that the companies submit fault-free financials regularly. Moreover, the relevant laws and rules should be amended to facilitate sending of observers or administrators to the errant listed companies to protect the interest of the investors the way the BB tries to safeguard the depositors' money.
Some people might find the proposition rather unrealistic. But, in reality, it is not. There has to be some mechanism to protect the interest of the capital market investors.