Dismissal of the CEO of the bank with overdraft

According to the financial news report, according to experts and economic experts, structural weaknesses and shortcomings are the main causes of Iran’s economic problems, the country’s monetary and banking laws are old and ineffective, conflicts of interest are not taken into account, lack of transparency, weak supervision and lack of independence of the bank. The center of the government is one of the most important of these problems.

The tumultuous 12-year path of the “Central Bank Law” project
In order to solve these problems, the draft “Central Bank Law” was developed and recently approved; Although this plan was finally approved on October 19 of this year by the Expediency Council, it took many years to develop the Central Bank bill and many expert studies were conducted.

The initial steps of this plan were taken in the 9th and 10th governments and the Central Bank Law Bill was drafted, but this bill did not go to the parliament until the end of the 10th government. He did not go, at that time because a plan to amend the banking laws was being drafted and finalized in the Economic Commission of the Ninth Parliament, at the request of the officials of the economic team of the government and with the promise that the government is going to soon draft a bill for both the Central Bank and banking, the submission of the said plan to the open floor of the parliament was stopped.

But the life of the 9th parliament ended and the government’s banking bills did not reach the parliament, the government officials at that time promised that the first government bills to the 10th parliament would be banking bills, but the life of the government also ended and the government’s prudence and hope for banking bills did not send it to the parliament.

Finally, 7 months before the end of the 10th Parliament, the Economic Commission of the Parliament sent the draft of the Central Bank Law to the open floor of the Parliament, which was generally approved, but the review of the details was postponed until after it was re-examined by the Economic Commission. The plan of the central bank law did not come to fruition.

With the inauguration of the 11th Parliament, in May 1400, the general draft of the Central Bank Law was again approved, and more than a year later, in September 1401, the said draft finally reached the public floor of the parliament, and on several occasions, the provisions of the 67-article draft were reviewed and Was approved.

Marathon review of flaws in the draft law of the Central Bank in the Guardian Council
After approval in the parliament, the mentioned plan was referred to the Guardian Council in the first step. The Guardian Council reviewed the plan within 20 days and introduced 115 major and minor objections to the plan, all objections were reviewed by the Economic Commission and approved in the public hall of the parliament in February 1401. After the plan was approved again, it went to the Guardian Council. The number of objections of the Guardian Council was reduced to 28, these objections were reviewed again at the end of April 1402 and correction proposals were approved.

The number of objections of the Guardian Council to the draft law of the Central Bank in its third review, which was sent to the parliament on May 14, was reduced to 11. After many back-and-forths, the number of objections The text was reduced to 7 items. The controversial issues of this plan were reviewed and modified in several meetings of the Expediency Council. With the determination of the content of this plan, the work of examining the disputed cases of the Islamic Council and the Guardian Council was completed, and finally, on November 29 of this year, the Central Bank Plan became the Central Bank Law.

managing conflicts of interest and improving oversight; The most important change in the new law
Perhaps the most important change in the new law is the change of “Monetary and Credit Council” to “Supreme Board”. The interests among the members of this council, which led to its inefficiency, were seriously criticized by economic experts.

The members of the Money and Credit Council were the Minister of Economic Affairs and Finance, the President of the Central Bank of the Islamic Republic of Iran, the President of the Country Planning and Budget Organization (or his deputy), two ministers selected by the Cabinet, the Minister of Industry, Mining and Trade, The President of the Chamber of Commerce, Industries, Mines and Agriculture of Iran, two experts and monetary and banking specialists at the suggestion of the Governor General of the Central Bank of the Islamic Republic of Iran and the approval of the President, the Attorney General of the country (or his deputy), the Chairman of the Chamber of Cooperation and representatives of economic commissions and the program, budget and calculations of the Islamic Council (one person each) as an observer with the election of the assembly.

The composition of the members of this council is a set of opposites that clearly shows the conflicts between the members, for example, the Minister of Silence and the head of the Chamber of Commerce are members who need to receive money from the Treasury and create money for their respective ministries and institutions, while the head The entire Central Bank and the Head of the Planning and Budget Organization are against creating money and allowing withdrawals for commercial activities. This combination, which is the blessed legacy of the Pahlavi era, was repeated without much change in the development plans of the Islamic Republic, which fortunately was revised in the Seventh Development Plan and the Central Bank Law, and by turning the Council into a supreme body with the aim of reducing the conflict of interests. and increasing the efficiency of this defect was corrected.

According to the new law, the members of the Supreme Board are as follows:

1. Governor General of the Central Bank (Chairman of the Board of Governors);

2. Minister of Economic Affairs and Finance or his deputy;

3. The head of the country’s program and budget organization or his deputy;

4. two economists specializing in monetary and currency policy;

5. Two experts in the field of banking: one person in the field of banking law and one person in the field of financial affairs.

6. Attorney General of the country

7. Central Bank Regulation and Supervision Deputy

8. Central Bank monetary policy deputy

According to this composition, the only minister who is present in this board is the Minister of Economy, and four non-executive members who are experts, will work full-time at the Central Bank and cannot have a job other than teaching at the university. The Prosecutor General of the country was added to the composition of the Supreme Council by the decision of the Expediency Recognition Council with the argument that a member from the judiciary should be included in the affairs of the council.

In addition, for the first time in the country’s legislative history, conflict of interest has been directly addressed in this law, so that all members of the Supreme Council must fill out the “conflict of interest” form. Also, in order to increase transparency, they should disclose all their property, assets and bank deposits to the central bank.

While the previous law is silent on many regulatory issues, the significant strengthening of the central bank’s regulatory role is another achievement of this law. Based on this, Articles 27, 28 and 29 of the Central Bank Law are referred to as the central bank’s regulatory toolbox. In Article 27, exploratory powers, Article 28 preventive powers and Article 29 corrective powers have been granted to the central bank supervision department.

Trying to improve the relationship between the government and the central bank
As mentioned earlier, the key change in the new law is to change the composition of the members of the Supreme Council with the aim of reducing the weight of the government’s political decisions and increasing the independence of the central bank. According to the new law, only two people from the government (the minister of economy and the head of the organization) are present in this board, and other ministers have been removed and replaced by economic experts (as mentioned).

It is also decided to reduce the payment of the budget to the government to one percent of the total annual budget. The method of implementation of this article has been established in a staggered manner, and in the first year of the implementation of the law, the salary is supposed to be 3% and gradually decrease by 0.5% of the salary every year until finally the salary is reduced to 1% of the total annual budget.

In the field of currency relations between the central bank and the government, an important measure has been taken to curb inflation and print money without backing. Until now, the government could sell its blocked foreign currency income to the central bank and get its Riyal equivalent, but according to the new law, the Central Bank is allowed to pay the Riyal equivalent of the purchased currency if the currency is transferred to the Central Bank account. . The central bank cannot give its rial equivalent to the government before depositing the currency into its account. In other words, there will be no more money creation without backing.

Also, according to the new law, the central bank is prohibited from granting loans to the government and state-owned companies. Contrary to the previous law, according to its articles 11 and 12, the central bank was allowed to grant facilities to the government and state-owned companies, which caused some disagreements.

All the above-mentioned cases have been adopted in order to increase the independence of the Central Bank of the Islamic Republic of Iran and reduce the effect of the government’s decisions on the policies of the Central Bank. In the developed countries of the world, the term of office of the governor of the central bank is usually 7 years, so as not to be influenced by the political relations between the government and the president himself. A look at the text of the law of the Central Bank of the Islamic Republic of Iran clearly shows that the effort of its compilers is based on the independence of the central bank with the aim of stabilizing the country’s monetary policies and not being influenced by the political decisions of the statesmen.

The Central Bank’s expanded role in dealing with non-performing banks
According to the new law, the power of the central bank to deal with the delinquent banks has been greatly increased. In the new law of the central bank, from articles 19 to 34, the focus is on the rule of passing (decision), and this leaves the hands of the central bank free to make a decision on non-compliant and delinquent banks.

Also, according to Article 45 of this law, the possibility of overdraft for banks and credit institutions is limited in such a way that if the amount of overdraft of a bank from the resources of the central bank exceeds the weekly limit for only 4 consecutive days, the deputy supervisor of the central bank is obliged to submit a report to the president and It is the supreme board of the central bank. After hearing the report of the deputy supervisor, the supreme board must either agree to pay the emergency facility (with a 30-day deadline) to the credit institution, or must oblige the president to appoint a temporary supervisory board for the credit institution. In other words, if a bank withdraws only 4 days beyond the set limits, the supreme board can dismiss the CEO of the bank.

In addition, the structure of the banks’ disciplinary board has also been changed in the new law, in such a way that the judge will be the decision-maker and other members will participate in the meetings without the right to vote, and the final decision-maker will be a judge who must have at least 15 years of experience in dealing with economic crimes. and will be appointed by the personal decree of the Head of the Judiciary.

The disciplinary board is the most important pillar in which violations of the banking system are investigated during the legal process. Until now, in addition to being a member of the disciplinary board, the bank representative also had the right to vote in this board. It is obvious that due to the conflict of interests, the bank’s representative could prevent the disciplinary board from making the right decision with extra-ordinary relationships. According to the new law, an appeals disciplinary board will be formed in the Central Bank and the first disciplinary board will be obliged to deal with the violations of the persons under supervision at the request of the deputy supervision of the Central Bank with urgency.

Bright outlook despite some concerns
The law of the Central Bank of the Islamic Republic of Iran is evaluated from the perspective of “supervision, transparency and conflict of interest”. According to the opinion of most economic experts, the said law has many positive points, but how this law will be implemented is a point of disagreement among economic experts.

According to the analysis of the “Transparency for Iran” think tank, despite all the positive points that were said about this law, some considerations still make economic experts doubtful about the future of this law and its effect on improving the country’s economic situation.

One of the most important ambiguities of the Central Bank Law is the unclear relationship between the government and commercial banks, although according to this law, it has become more difficult for the government to borrow from the Central Bank, but regarding the fact that the government can borrow from other commercial banks instead of the Central Bank (such as Sepe, Melli, welfare etc.) to borrow, he is silent.

Currently, the bread subsidy is paid through Sepeh Bank, the guaranteed purchase of wheat from the Agricultural Bank, and the social security fund balance is paid through the Refah Bank. In other words, the relationship between the government and the central bank may be improved, but the government will continue to repeat its economic wrongdoings through other state banks, and the said law will fail to achieve its goals.

Another concern is the determination of multiple and sometimes contradictory goals for the central bank in this law, while in most developed countries the goal of the central bank is to curb inflation. In this law, in addition to curbing inflation, “the health of the country’s banking network, support Economic growth and employment” as well as “helping to achieve social justice” are among the goals of the central bank.

Although the central bank’s relationship with social justice and employment creation has many uncertainties, the main concern in this regard is that setting these goals for the central bank will cause a decrease in focus and distance from the main mission and goal of the central bank, which is to contain inflation. Although a number of economic experts are negative about this law from the beginning and believe that the government will not survive without borrowing from the central bank, but in order to get the answers to these questions, one should leave pessimism aside and wait and see that in days and months. What will be the future performance of the government and the implementation of the central bank law?

Source: Fars