The BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) was one of the finest state-owned banks of Bangladesh up until some serious allegations were made against the top managers of the bank regarding loan scamming from the period of 2009 to 2013 by the economic intelligence unit of Bangladesh Bank. BASIC Bank was established as a banking company under the Companies Act 1913 and launched its operation in 1989. It was incorporated under the Act on the 2nd of August, 1988 and started its operation from the 21st of January, 1989.The Bank was established as the policy makers of the country and felt the urgency for a bank in the private sector for financing Small Scale Industries. At the outset, the Bank started as a joint venture enterprise of the BCCI Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent shares. However, the Government of Bangladesh took over 100 percent ownership of BASIC on 4th June 1992.Thus, it became a state-owned bank though it is not nationalized and it operates like a private bank as before.

Basic Bank is unique in its objectives and it is in fact a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan-able funds shall be invested in the small and cottage industries sector (BASIC Bank website, 2018). Bangladesh Bank reports revealed that nearly Tk. 4,500 crore was taken illegally in the name of loans from the bank with the direct connection from the chairman of the bank at that time along with the help of other board of directors. What was really surprising in this situation is that of the Tk 4,500 crore swindled out of the bank, more than 95 percent was sanctioned by the board. In each case, the loan amount was more than Tk 1.5 crore, a sum the management cannot approve without the board's approval (Khan and Uddin, 2018). Bangladesh Bank (BB) however, unearthed several anomalies in the loan sanctioning process by the Board of Directors of the bank. The report of Bangladesh Financial Intelligence Unit (BFIU), the anti-money laundering unit of the central bank, in 2014 showed that around Tk. 20 crore was transferred to bank accounts of two firms, owned by a close family member of the Chairman, from several companies that got loans from BASIC Bank through scams.

Another important thing to notice on this point is that in 2010, BASIC Bank approved a loan of Tk 5.60 crore to BS Trading before the firm even opened its account with the bank. The loan amount was raised to Tk 33 crore in 2012. The branch concerned, however, didn't show any reason for increasing the amount. It didn't even verify the ownership of the property that was mortgaged against the loan. Besides, no credit risk analysis was done before approving the loan though it was mandatory. No documents of the mortgaged land were collected (Alo, 2017). This means there existed some serious irregularities in the governance mechanisms of the bank at that period. The BB team filed a 47-page long report, which includes a list of borrowers, giving almost a minute-detail account of how the loans were approved and then withdrawn in clear violations of the rules. A serious governance failure was identified in this report of BB as it said that BASIC Bank's board and its credit committee at the headquarters ignored the negative observations from the bank's branches on a number of loan proposals, and approved those without following due diligence.

In May 2014, the central bank fired BASIC Bank managing director for presiding over a period of serious irregularities at the state-run bank. Bangladesh Bank found him to be culpable in seven counts, including lack of sound management, failure to protect depositors' interest, and loan irregularities. In the aftermath of this incident Anti-Corruption Commission (ACC) filed 56 cases in 2015 accusing a total of 110 people and organizations for gross loan irregularities worth over Tk 4,500 crore. Of the accused, 27 were bank officials and the rest were borrowers and surveyors, according to the ACC (The Daily Star, 2016). Despite those paper evidences and practical allegations against the then chairman of the bank, he was not made an accused in any of the cases filed by ACC which raised questions regarding his political backings in this scam.

1) Based on your learning from the failure of Lehman Brothers try to draw the similarities and differences between both banks failures (Lehman Brothers and Basic Bank).

2) Discuss how BDDL can help Basic Bank to overcome systemic-risk and Bank Contagion (use concept taught in Bank Failure recording).

3) Highlight any two policies of the Central Bank which BDDL should implement after merging with Basic Bank in order to recover the bank. Justify with reasoning.

4) The Federal Reserve did not save Lehman Brothers from going bankrupt which led to their failure. However, Bangladesh Bank did not allow such a case for Basic Bank. Why do you think these two central banks took such opposite decisions? Justify your answer.