Ethics in Banking: Roots and Repercussions: Unraveling the Ethical Crisis in Bangladesh’s Banking Sector

What the paper says

This study reinterprets Bangladesh’s banking crisis as primarily an ethical and governance breakdown rather than a technical failure of financial intermediation. Using a mixed-methods design—qualitative case studies, expert interviews, and a multi-stakeholder survey of 205 respondents (25.5% response rate)—we show that systemic instability is rooted in three mutually reinforcing drivers: (i) political capture of regulatory institutions via complicit actors; (ii) deliberate neutralization of core governance functions; and (iii) strategic disregard for prudential norms. Anchored in dialectical theory, we model institutional responses to crisis as recurring thesis–antithesis–synthesis cycles, situating the 2025 Bank Resolution Ordinance (B.R.O.) within this regulatory dialectic. The empirical base spans major scandals from 2009–2024 across conventional and Islamic banks, tracing how political patronage networks enabled formalized fraud, impunity, and cross-sector procedural irregularities. We find the most consequential interference occurred in Islamic banks—despite their Shariah-based ethical claims—through a nexus of political and regulatory influence. Policy implications are clear: viable recovery requires reengineering governance cultures, instituting credible safeguards for regulatory independence, and operationalizing meaningful accountability mechanisms. These results inform debates on banking accountability and state capacity in developing economies where political interference and institutional fragility undermine financial stability and trust (see, e.g., Janbaz et al., 2024).