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Any scheduled bank or financial institution, including troubled Islamic banks, may go under government ownership for bringing stability in the noncompliant commercial lenders under a latest reform panacea.

In the process of streamlining, officials say, the central bank can temporarily take over control of any such bank or nonbank.

For this, the Bangladesh Bank as the regulator can issue an order transferring one or more shares and the recipient of shares must be a government-owned entity, according to provision of the bank Resolution Ordinance published in official gazette on Friday.

The ordinance had earlier received approval from the Advisory Council of the interim government on April 17.

Simultaneously, the ordinance also vests authority in the banking regulator to hold bank high-ups, like managing directors, chairman, and other responsible officers, personally liable for "fraudulent" use of a bank's funds.

These individuals will be forced to repay the fraudulently used or misused assets or funds to the respective bank. Failure to do so will result in legal action initiated by the bank concerned against the responsible parties, it says.

The draft law says if the owner of a bank directly or indirectly misuses the bank's assets for personal gains or resorts to fraud, the BB reserves the right to initiate resolution proceedings against that bank.

"If necessary, the regulator can appoint an administrator in the bank temporarily, reinvest capital, transfer assets and shares to a third party, and suspend operations partially or completely of the bank," the ordinance states.

"Resolution" is defined in the ordinance that encompasses the power to take any form of action against the bank in question.

The ordinance also outlines circumstances under which the central bank can intervene in the interest of a bank's betterment, if the regulator deems a bank no longer viable or unlikely to become viable, bankrupt or nearing bankruptcy, unable to meet depositor obligations, or having created a situation of financial distress.

Consequently, the Bangladesh Bank will establish a dedicated department to handle these matters, as stated in the ordinance.

There is also a provision in the ordinance for the formation of one or more bridge banks to ensure effective management of the weaker banks.

These bridge banks can subsequently be sold to third parties. Bangladesh Bank retains the authority to suspend or prohibit all business activities of a weak bank. A bridge bank is defined as a temporary entity formed by the central bank to manage the operations of a weak or bankrupt bank.

The ordinance mandates the formation of a seven-member inter-institutional body known as the Banking Sector Crisis Management Council, led by the BB governor. And this council will be responsible for formulating crisis-management strategies and contingency plans.

Other members of the high-profile body are the finance secretary, the secretary of the financial institutions division (FID), the chairman of the Bangladesh Securities and Exchange Commission (BSEC), the secretary of Legislative and Parliamentary Affairs, the deputy governor who takes care of resolutions affairs, and another deputy governor nominated by the governor.

The ordinance specifies that upon the cancellation of a bank licence, the BB will submit a petition to the court for starting its liquidation.

The court will then appoint a liquidator nominated by the Bangladesh Bank. "Once the liquidation order takes effect, no interest or other charges will accrue to the bank's liabilities."

In addition, a bank can also undergo voluntary liquidation, but it cannot cease operations without prior authorisation from the BB.

Deposits must be repaid within seven working days of the licence- revocation decision taking effect, and other liabilities must be settled within two months.

In addition, a provision has been made for slapping a financial penalty of up to Tk 500,000 and an additional penalty of Tk 5,000 for each day of violation of the ordinance.