Financial institutions should focus more on rebuilding trust in the banking sector with tightening regulatory and supervisory structures, said an Indian economist.

Developing countries like Bangladesh have to strengthen banking regulation and supervision as it is the main instrument for rebuilding and bolstering of trust in the sector, said YV Reddy, a former governor of Reserve Bank of India. He said though the global financial crisis does not harm the trust of the banking industries in developing countries, it is time to emphasise on rebuilding of trust.

Reddy spoke at the 12th Nurul Matin Memorial Lecture on trust in banking, organised by Bangladesh Institute of Bank Management at Ruposhi Bangla Hotel in the capital yesterday.

The world is integrating more rapidly, he said. “Growing contagion risks from ever increasing integration with the global financial system are heightening the need of bolstering defences against erosion of trust.”

Bangladesh Bank Governor Atiur Rahman said experience shows that without firm ethical underpinnings, regulatory compliance responsibilities tend to get neglected particularly in good times, as in the run up to the global financial crisis.

He said the right ethical motivations will draw financial intermediaries away from financing of speculative and unproductive wasteful activities.

“It is some years now that we have adopted this approach in Bangladesh's financial sector; beginning with a BB guided initiative of mainstreaming corporate social responsibility in the institutional ethos and objectives of banks and financial institutions.”

That has in turn motivated and enthused banks and financial institutions in socially responsible financing and also environmentally responsible 'green' financing, with due attention to address ecological degradation and climate change threat concerns, according to the governor.

News: The Daily Star/Bangladesh/9th-Dec-12