Central Banking Regulations and Supervision - Answer Sheet
1. a. Parties in Money Creation
Money creation involves the central bank, commercial banks, and customers. The central bank creates base money and
sets reserve requirements. Commercial banks create money through fractional reserve lending. Constraints include
reserve ratios and loan demand.
1. b. Bangladesh Bank as Lender of Last Resort
Provides emergency liquidity to banks during financial distress to maintain system stability. For example, if a bank fails
to repay depositors, Bangladesh Bank provides short-term funding.
2. a. Mission & Vision of Bangladesh Bank
Mission: Ensure financial stability, control inflation, promote inclusive finance. Vision: A modern and inclusive banking
system. Recent steps include digital banking, SME support, and cyber security.
2. b. Deposit Insurance Scheme
Protects depositors by insuring deposits up to a certain amount in case of bank failure. Managed by BDIT, it builds
confidence and stability.
3. a. Loan Classification and Rescheduling
i. Loan is classified as Standard, Sub-standard, Doubtful or Bad based on overdue duration.
ii. Rescheduling needs down payment (10-30%) and tenure revision.
iii. Banks must follow compliance rules and report to Bangladesh Bank.
4. a. CAMELS Rating System
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Central Banking Regulations and Supervision - Answer Sheet
CAMELS = Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, Sensitivity. Used to assess a banks
financial condition.
4. b. CAMELS Calculation
Given ratios suggest strong capital and earnings, moderate sensitivity. Overall rating: Strong to Satisfactory.
5. a. Money Laundering Stages
1. Placement: Inserting illegal money into system
2. Layering: Hiding source via transfers
3. Integration: Legalizing funds into economy
5. b. Penalties under MLPA 2012
Fine: Equal to or double the amount
Imprisonment: Up to 12 years or both.
5. c. National Strategies
Includes AML cell, STR, KYC/CDD, and FIU by Bangladesh Bank.
6. a. Definitions
Base Money: Currency + Reserves
Currency: Notes/coins
Multiplier: 1 / Reserve Ratio
Reserve Ratio: Required reserve percentage
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Central Banking Regulations and Supervision - Answer Sheet
6. b. Money Creation Example
$100 issued, 10% reserve Multiplier = 10 Total money created = $1000
7. a. Credit Control Methods
Quantitative: CRR, SLR, OMO, Repo
Qualitative: Moral suasion, selective credit control
7. b. OMO vs Bank Rate
OMO: Quick impact via bond trades
Bank Rate: Slower influence via refinance rates
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