NDIC, CBN collaboration seen necessary as financial complexity grows

Greater co-operation between Nigerian financial regulators should be the emphasis as the banking system becomes increasingly complex and banking assets grow, analysts have said. A battle for influence among Nigerian financial regulators broke out in the National Assembly recently as they testified before a Senate committee on the merits of the Nigeria Deposit Insurance Corporation (NDIC) Act Cap 102 LFN (Repeal and Enactment) Bill 2015.

BusinessDay investigations reveal that this was mostly unnecessary as the proposed amendment is in line with practices of USA financial regulators which the NDIC was modelled on. The NDIC had sought an amendment to its Act of 2006 which does not now give it the powers to independently supervise and liquidate failing banks. Other powers sought by NDIC include power to license banks, power to supervise banks without reference to the Central Bank of Nigeria (CBN), power to determine the licences of banks and power to appoint itself as liquidator of ailing banks. BusinessDay’s analysis of the United States Federal Deposit Insurance Corporation (FDIC), which the NDIC was modelled after shows that the FDIC is an independent regulator that acts as a risk minimiser which promotes financial system stability. The FDIC which was created by the Banking act of 1933 provides deposit insurance guaranteeing the safety of a depositor’s account.

The FDIC also examines and supervises certain financial institutions for safety and soundness, per- forms certain consumer- protection functions, and manages banks in receiver- ships (failed banks). “So long as there is clarity of purpose and remit, it’s difficult to see why it should do any harm to have a number of agencies able to have a view on the banks,” Razia Khan, Managing Director, Head, Africa Macro Global Research, said in response to questions. “The danger lies in this potentially becoming muddled.” That potential muddling of the waters appears to be behind the CBN’s seem- ing opposition to some of the NDIC proposed amendments. The CBN governor God- win Emefiele, speaking at the Senate hearing through his Deputy, Suleiman Barau, said the amendment NDIC is seeking would make the NDIC a parallel or coordinate regulator for banks which was capable of causing chaos and anarchy in the financial sector.

In a response to the CBN claim, the Managing Director of the NDIC, Umaru Ibrahim, said: “We are for collaboration; we are for the safety and soundness of the system. We are not in competition with the CBN.” The CBN and NDIC have had a close relationship since inception of the latter, BusinessDay findings show.

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