Far-reaching implications of CBN, NDIC power tussle
THE success associated with division of labour cannot be too far from the understanding of roles, responsibility and accountability.
These help to remind principal actors where they are coming from and where they are headed. Surely, CBN and NDIC have lived with these understandings and perhaps, could be said to have accomplished much, especially with regards to safe, sound financial system and monitoring of the banking system.
In recent years, the cooperation between these two government agencies had played a greater role in averting calamities that would have befallen the country in form of systemic failures. Of course, few banks that collapsed, with many other “limping”, were resolved in a way that facilitated the financial system’s return to assessed profitability presently.
No depositor of the failed banks was left lamenting on the street. This is the story of collaboration, but mostly, that of knowing the rules, the “red lines” and playing by the rules.
Perhaps, it would be beneficial to start from the known in discussing the duo. The feats so far accomplished by the two agencies were based on their subsisting Acts establishing them. That the NDIC’s roles as we know now, were once carried out by a department of CBN, until 1988, when it was established as a full fledged agency. It could also be said that CBN gave “birth” to NDIC, especially as records have it that the take off workforce of the safety net agency was mainly apex bank’s own.
We also will not wish away the fact that several amendments since the coming on board of the agency have taken place, which perhaps, added to its efficiency. But the questions that will normally prop up are whether the agency is not efficient, not functioning/at optimum level, needs further adjustments in keeping with the trends and global best practices.
But we would also need to assess trends to see whether there are situations where more than one authority charge supreme over one subject. Again, if there exist two authorities, whether both are at equal power. There should also be need to find out whether strengthening a body or making it efficient only means expanding its horizon. Are all best practices possible in all climes?
NDIC’ enabling Act Section 2 (1), stated that it shall have responsibility for insuring all deposits liabilities of licensed banks and such other deposit taking financial institutions (hereinafter referred to as “insured institutions”) operating in Nigeria within the meaning of sections 16 and 20 of this Act so as to engender confidence in the Nigerian banking system; giving assistance to insured institutions in the interest of depositors, in case of imminent or actual financial difficulties particularly where suspension of payments is threatened to avoid damage to public confidence in the banking system; and guaranteeing payments to depositors, in case of imminent or actual suspension of payments by insured institutions up to the maximum amount as provided for in section 20 of this Act.
Others are assisting monetary authorities in the formulation and implementation of banking policy as to ensure sound banking practice and fair competition among insured institutions in the country; and pursuing any other measure necessary to achieve the functions of the Corporation provided such measures and actions are not repugnant to the objects of the Corporation.
Currently, NDIC is seeking 25 amendments to the corporation’s 2006 Act aimed at rectifying acclaimed errors and weaknesses noticed in the subsisting Act, together with infusion of more powers, which it said were informed by operational experience.
The proposed amendments, which include public policy objectives and functions, seek to include revocation of operating license of insured institutions (deposit money banks); power to disqualify board members; and composition of management committee, among others, have not gone down well with the apex regulator of financial system.
The Managing Director of NDIC, Alhaji Umaru Ibrahim, said that the corporation was not seeking any role outside its lawful mandate, there was nothing wrong or anything that could bring conflict of interest and that it was not only asking for fresher provisions, but a few alterations to ensure a healthy, safe banking environment.
At this juncture, let us ask few pertinent questions. Will the Act also enable it to grant license to banks, to reserve the power to withdraw it? Would it seem proper for someone to issue regulations and guidelines, only for another to terminate the license? Again, would NDIC, at the point of withdrawal of the license, notify the CBN that the granted license has been terminated by it? At this point, who is reporting to who? By the way, what now would be the job of CBN? Could there not be clash of opinion, interest and possible compromise?
However, CBN has remained consistent in its conclusions that the move is capable of enthroning a regime of clash of interest and may put it at the risk of losing its supervisory powers to NDIC. Of course, except these periods of innovative ideas, there may not have been any economy that its financial system is not in full control by its central bank.
The Governor of CBN, Godwin Emefiele, who was represented by Sulieman Barau- a Deputy Governor, at a public hearing on the issue, called for an outright rejection of the amendments being sought by NDIC, saying that it is capable of causing chaos and anarchy in the financial sector.
Emefiele noted that the implications of the proposed amendment to the NDIC Act would make the NDIC a parallel/coordinate regulator for banks like CBN; confer conflicting supervisory functions and powers on NDIC over banks; and create overlapping regulatory responsibilities, adding that the powers that the agency is seeking to assume and exercise and their consequences include power to licence and supervise banks without reference to the CBN, power to determine the licenses of banks and power to appoint itself as liquidator.
The obvious is that there cannot be two captains in a ship. It has never worked and there may not have been a venture in that direction. An Act that shares same roles and regulations for two agencies over one institution will only create chaos.
Again, the fact that the bulk of the older staff of NDIC were from CBN and had been working harmoniously together, raises a new concern over what happens after they retire, with issues of responsibility/authority arising. This may give rise to unending litigations- going to the courts for adjudication, thereby exposing/ridiculing regulatory institutions.
“This position (power usurpation), which the corporation claims to have dropped following our engagement with it, appears to still form the bedrock of some of its current proposals on the amendments and is the basis for some of the powers that it seeks to exercise.
“The NDIC’s position in this respect is evidenced by its written request to the CBN that banks in the financial system be equally shared between both organizations with each party able to exercise regulatory and supervisory powers over its ‘share’ without reference to the other. It is in this regard that the corporation proposed to examine banks and issue reports thereon without reference to the CBN.
Also, the Corporation seeks to be able to remove board and management based on the report of its examinations on these banks,” the apex bank said.
CBN, in its memorandum to the Senate said the above responsibilities, which should form the basis of the mandate of the Corporation, do not differ from those in other jurisdictions including Canada, Malaysia, and Japan, hence the new powers that the Corporation seeks to assume and exercise are not only difficult to subsume under its responsibilities as detailed above, but are alien to deposit insurance practices in those jurisdictions.
However, NDIC’s move seemed to be drawn from the Core Principles for Effective Deposit Insurance issued by the International Association of Deposit Insurers (IADI) issued in June 2009 and the practice in the United States of America, where the Federal Deposit Insurance Corporation (FDIC), along with the Federal Reserve and the Office of the Comptroller of Currency regulates and supervises banks to ensure the safety and soundness of financial institutions, stability in the financial markets, and fair and equitable treatment of consumers in their financial transactions.
Still, the practice is not without caveat. First, the IADI Core Principles for Effective Deposit Insurance Systems acknowledges the limitation of deposit insurance in ensuring financial stability. Core Principle 1, states that, “… the principal objectives for deposit insurance systems are to contribute to the stability of the financial system and protect depositors. This principle makes no reference to supervision and does not advocate a take-over of the supervisory function as is being canvassed by the NDIC, the bank noted
But explaining the difference in the for the role of the FDIC in the USA, apex bank pointed out that while it agrees that the Federal Reserve shares supervisory and regulatory responsibilities for domestic banking institutions with the Office of the Comptroller of the Currency (OCC), FDIC and the Office of Thrift Supervision at the federal level, and with the banking departments of the various states, the primary supervisor of a domestic banking institution is generally determined by the type of institution that it is and the governmental authority that granted it permission to commence business (commonly referred to as a charter).
“The US financial system is therefore unique and not replicated anywhere in the world; hence our concern at the constant reference to the system as ‘best practice’ by the NDIC. Certainly, a country from where the global financial crisis started cannot be cited as an example for the rest of the world to follow,” CBN added.
We do not need to muddle up things at this stage, instead, policy directions should be tailored to development, not stoking rivalry. This is particularly important to the sector that controls the nations wealth and monetary system, even serving as an outlet for various macroeconomic policies.
Everybody must return to status quo and work to be efficient with the subsisting Act. This is also important because our system has not developed to accommodate complex structures, which may require more than the capacity we have at present to maintain. Besides, we are just beginning to have a stability in the system, which was destabilized by the contagion of global economic crisis and our homegrown fiscal and governance rascality.
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