We really do need a functional banking system more than we need money. Or to say the same thing another way, people really have stolen a lot of the money from the banking system.
But we're going to have to just grin and pay up -- because having the banking system is much more important to us than waiting until we can make the thieves pay it all back.
This is not what we would like. It is also, sadly, true.
The governor of the Bank of Bangladesh -- the central bank -- has said: “Nearly one-third of the total money in bank loans has practically been stolen.”
The way that banking works, this means that nearly one-third of the money that we have deposited in banks has been stolen. Yes, banks have capital as well, but one third is much more than they have of that.
So, now the banks have no capital and also have lost some portion of all the deposits that were made into them.
This is not true of every bank. Some are vastly worse than others. But banks are, overall, a system. Loss of confidence in a part of the system could -- and today does -- mean loss in the system as a whole.
We've had reports of people withdrawing their cash from the banks and keeping it as cash outside the banks. This is perfectly sensible. It's also, in itself, a disaster for the wider economy.
For banks -- assuming the money isn't all stolen -- perform a duty. They recycle peoples' savings into investment.
The cash that we put aside, as long as it's in a bank, produces the working capital that a company needs to be able to trade.
Or the mortgage so that someone can buy an apartment. Or....well, whatever it is that people borrow money for.
Our deposits into banks finance the loans banks make. So, if we're not willing to deposit, then loans are not made and the economy stutters, slows, and we gain no economic growth.
In fact, when this happened in the 1930s in the US, the economy shrank by 25% in only a couple of years. We would not like this to happen to us today.
The central bank knows this and is doing what a central bank should: “To prevent systemic defaults, Bangladesh Bank has injected over Tk76,000 crore in emergency liquidity support into fragile institutions.”
For, yes, we are very annoyed (to put it mildly) that the thefts of the loans occurred but overall, it's better that we keep the banks going than that we don't keep the banks going.
Annoying as that is, it's just the way it all works out. Having a banking system is better than not having a banking system.
We are, and I'm sorry about this, simply going to have to pay to keep the banks solvent -- to stop them from going bust.
Yes, it's true that the money was stolen and that's not our fault but we're still going to have to pay.
Simply because still having banks taking deposits and making loans is more valuable to us than not having it.
That is not where it stops. We will then have to make sure that the new politics do not lead to it just being a new group who can get loans they can steal.
We also need to hold those who did steal accountable. The bank shareholders, who allowed this to happen, should lose their money. The bank management should all be fired. If we can, we should steal their pensions.
Those who took the loans and are not repaying -- we bankrupt them. If the money's in flats and houses in London, then we pursue them to Britain and take those flats and houses. We do not let them get away with this.
A major reason we must not let them get away with it is so that no one tries this again. We really do want those who have stolen from the banks to end up trying to sell tea outside a metro station. Pursue them to the ends of the Earth.
But, all that said, we are going to have to pay to recapitalize those banks.
And, if we need to in order to maintain confidence in the banking system itself, then, as taxpayers, we are going to have to pay back those depositors whose money was stolen.
I'm sorry about this, I really am. But the value to us as an economy of still having a banking system is so great that we, us out here, are going to have to carry the costs of those thefts.
We should -- must -- punish those who stole and we might get some of the money back as we do so. But save banking first, then punish the thieves.