Financial System in

Bangladesh
 Financial System: Basic Concepts
 Finance is the provision of fund from surplus
economic units to deficit economic units.
 Two types of finance: direct and indirect.
 The financial system is a set of institutional
arrangements through which financial surpluses in
the economy are mobilized from surplus units and
transferred to deficit spenders.
 The main constituents of any financial system are:
financial institutions/intermediaries, financial
instruments, and financial markets.
 Financial System: Basic Concepts
(contd..)
The modern name of financial institution is financial intermediary (FI),
because it mediates or stands between ultimate borrowers and ultimate
lenders.
Financial institutions are generally classified under two main heads:
a) banks and (liability-money)
b) non-bank financial institutions. (not money)

All so-called commercial and specialized banks are clubbed under Banking
Financial Institutions (BFIs). The investment /merchant banks, leasing
companies, house finance companies etc. are included under non bank
financial institutions (NBFIs).
 Financial System: Basic Concepts
(contd..)
 Difference between BFIs and NBFIs: the liabilities of BFIs are
money, whereas the liabilities of NBFIs are not money.
 Financial instruments are the evidence of financial claims of one
party (holders) against another party (issuers). These are of two
types: primary (or direct) and secondary (or indirect) financial
instruments. The former are financial claims against real-sector
units and the later are financial claims against financial institutions
or intermediaries.
 Financial System: Basic Concepts
(contd..)

 Financial markets are the markets where financial instruments

are bought and sold (traded). These are of two types: money
market and capital market. The former deals with short term
financial instruments, and the latter deals with long-term
financial instruments. Financial markets may also be divided
into security and non security markets.
Financial System: Basic Concepts
(contd..)
 Security option of financial market comprises:
new issue market (NIM) and secondary market,
which again is composed of stock exchange and
over-the-counter (OTC) markets.
 Central Bank (Bangladesh Bank) is the financial
supervisor and regulator for non-security portion
and Security and Exchange Commission (SEC)
plays the role of supervisor and regulator for
security portion of the financial market.
 What is a Bank and NBFI?
A bank is a financial intermediary accepting
deposits and granting loans; offers the widest
menu of services of any financial institution.
A non bank financial institution is a depository
institution offering checking account or
commercial loans but not both.
 Functions of Commercial Banks
Commercial bank’s functions can be categorized
into two types-
1. Primary or Principal Function
2. Secondary or Ancillary Function
Primary function of commercial banks are of three
types:
1. Acceptance of Deposit
2. Lending
3. Investment
Functions of Commercial Banks (contd..)
Secondary functions are of two types:
1. -Collection & payments of cheques
-Standing Instruction
-Acting as correspondent
-Collection of utility bills
-Purchase and sales of stocks
Functions of Commercial Banks (contd..)
2. Miscellaneous or General Services:
-Safe custody of valuables for clients
-Lockers for clients
-Remittance facilities-DD,TT,MT and PO
-Advisory services
-Providing credit reports
-Opening L/Cs
-Issuance of travelers’ cheques
Functions of Commercial Banks
(contd..)
-Delivering foreign-trade related services
-Others services, e.g., issuance of debit/credit
card, on-line banking etc.
-Cash management function
-Security brokerage function
-Merchant banking function
-Act as a guarantor
 Functions of Central Bank
A central bank is generally recognized as
constituting the apex of the monetary and
banking structure. Functions most closely related
to the conduct of monetary policy include:
 Making and implementing monetary policy.
 Management of currency issue
 Government’s bank
 Bankers’ bank
Functions of Central Bank (contd..)
Other associated functions include:
 Supervision of financial institutions and markets.
 Lender of last resort
 Formulation and execution of exchange rate policy,
including foreign exchange market management
and control
 Custody and management of foreign currency
reserves
 Fiscal agent and management of the domestic
public debt
 Functions of Central Bank (contd..)
 Quasi-fiscal functions, such as subsidization of
specific sectors, providing exchange rate subsidies
or guarantees for exports.
 Deposit insurance
 Participation in clearing and settlement system.
Thank You