Emefiele Urges More Vigilance in Banking Supervision after Collapse of Two US Institutions

•Seeks improved regulatory measures against bank failure 

•Hints at expected $400m inflows for Nigeria from Standard Bank

Obinna Chima

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele has advised central bankers and regulators across the world to be vigilant and guard against failures of financial institutions in their jurisdictions.

The advised followed the closure of New York-based Signature Bank on Sunday by regulators, two days after they shut down Silicon Valley Bank in a collapse that stranded billions in deposits.

Owing to this, Emefiele who spoke at the opening of the 2023 African Central Bank Conference held at the Global Leadership Center, Johannesburg, South Africa, yesterday, also advised governors of central banks and other African financial sector regulators to improve their supervisory roles to forestall any run on financial institutions in their countries.

Speaking further, he hinted that Nigeria was expected to receive a $400 million inflow from Standard Bank by the end of this week, which according to Emefiele, would “help boost our funding and financing needs in Nigeria.”

Commenting further on the current global dynamics and specific policy developments in Nigeria to address emerging shocks, he advised central banks on the continent to draw lessons from the recent failure of Silicon Valley Bank and Signature Bank in the United States of America, by putting in place regulations that will prevent any run on banks in their countries.

“A major reason that contribute to bank failures is when the bank is unable to meet depositors’ demands for their money. This usually results to a run. There is need for regulators to insulate the banking system from collapse,” he added.

He noted the “devastation to lives and livelihoods that was caused by the Covid-19 globally.”

“And after Covid-19, we started seeing economies develop again, the numbers were good and financial market conditions were better and suddenly in 2022, another crisis came, the war between Russia and Ukraine that has unfortunately created for the global economy.

“All the forecasts made by the IMF and World Bank have begun to go south and inflationary pressure began to climb,” Emefiele added.

He highlighted measures the CBN took after the subprime mortgage crisis that led to the collapse of global financial institutions in order to avoid contagion effects on banks in the country.

Emefiele, while sharing Nigeria’s experience in regulating banks, noted that the threats posed to the financial system necessitated the release of new guidelines and regulations to tackle potential infringements and, in the process, protect depositors’ funds as well as promote greater transparency in the sector. 

According to him, regulators must be alive to their responsibilities by ensuring that banks under their regulatory watch are financially healthy and do not suffer a similar fate as the Silicon Valley Bank, which, until its collapse recently, catered to many of the world’s most powerful tech investors.

Emefiele told his audience that, “regulators must be prepared for what I call the rainy day. What umbrella have you built to ensure that depositors don’t face the risk of losing their deposits? That should be a lesson to regulators globally.

“People have always said that the Nigerian banking system is one of the most regulated. We are not saying there are no cases where banks have crisis in Nigeria, but we try as much as possible to ensure that we insulate the banking system from serious occurrences.

“It is only in Nigeria and very few countries in the world that you would hear that if a bank collects for instance, $100 from a customer as deposit, today, $32.5 of that must be kept at the CBN.

“It is to keep that fund to make sure in this kind of situation where they are crisis; we also maintain that bank would maintain a specified liquidity ratio and it is only in Nigeria that we insist that banks must have a minimum level of capital adequacy ratio.

“It is Nigeria and some few countries in the world that if you are a young bank, after declaring profit, we insist that 25 per cent must be held in a statutory reserve fund to boost your retained earnings and capital adequacy ratio. These are the kind of things regulators need to begin to look at increasingly. So, as a regulator, you need to begin to think of how to insulate your banking industry. Regulators must begin to begin to be much more responsible.

“We have often said it that in Nigeria, we believe that when there is a crisis, we make sure that depositors are protected and we make sure no depositor loss their money.”

He stressed that bad loans were major factors that kill financial institutions, reiterating the need for regulators to be more responsible.