Rana Al MOSHARRAFA/TURBULENCE IN DISGUISE IN THE BANKING SECTOR CREATE PANIC WITHDRAWAL OF MONEY IN BANGLADESH

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.

Keywords

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

JEL Classification

G21, G32, H12, G18.

How to cite this article: Mosharraafa R.A. (2023). Turbulence in disguise in the banking sector create panic withdrawal of money in Bangladesh. International Journal of Insurance and Finance, 3(1), 1-10. https://doi.org/10.52898/ijif.2023.1