NDIC-CBN tangle: Let the interest of depositors prevail

The differences that came to the fore at the public hearing between these erstwhile bedfellows of our macroeconomic policies conclave and the dramatic circumstances in which these differences were expressed were not lost on the media, which gave them extensive coverage.But the drama left in its wake, series of questions – What are these differences […]

The differences that came to the fore at the public hearing between these erstwhile bedfellows of our macroeconomic policies conclave and the dramatic circumstances in which these differences were expressed were not lost on the media, which gave them extensive coverage.
But the drama left in its wake, series of questions – What are these differences about? What is at stake? In other words, what section of the law NDIC is seeking the National Assembly to amend? Who’s to gain? And who’s to lose out of amendments?
Let’s start from the fears expressed by the CBN at the public hearing. According to the media reports, the CBN governor, Godwin Emefiele, speaking through his deputy, Suleiman Barau, said the amendment NDIC was seeking is capable of causing chaos and anarchy in the financial sector, insisting that the implication of the amendment will make the NDIC a parallel or coordinate regulator for banks as CBN.
In a calmed response to the CBN claim, the managing director of the NDIC, Alhaji 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”
So what are these amendments? They are many actually; over twenty – from the mundane to more serious ones. The mundane ones include correction of editorial errors, as well as drafting errors in the extant act; the need for declaration of public policy objectives; the composition and tenure of the board of directors; the vacancy of membership and appointment of more executive directors.
The more  serious amendments include adequate provision for general reserve fund, prohibition of payment of dividends by insured institutions while in default of assessed premium charges, the right to set-off guarantors’ deposits against the claim of the failed bank, payment of insured sums in the event of suspension of payment or imminent difficulty for payment even where operation license has not been revoked, and the supervision of related entities of insured institutions, particularly under consolidated supervision.
Others are power for immediate action required to conduct special examination by managing director without delay from its Board of Directors and presentation of examination report to the board of insured bank, prompt corrective action; the corporation as conservator; power of the corporation as liquidator, transfer of pending suits, interest on judgement sum; liability of directors and officers; other parties at fault; criminal prosecution and offences and civil penalty and service of process.
A close look at these operational needs makes one wonder how such needs were not taken care of by the extant laws in the first place. But the point is that man-made laws are made to achieve effectiveness in the regulation and administration of human endeavours and, when over time they become deficient, they need to be amended to achieve the much sought after efficiency and effectiveness.
On a further look at these amendments, one can see that they are set to address the expectations of the stakeholders. Depositors look up to the NDIC to offer relief to them when their funds are threatened or trapped in failed or ailing financial institutions. The NDIC demonstrated its ingenuity in 2011 when it introduced the bridge bank model in failure resolution. The option put the interests of the banking public first, especially the primary depositors and, to prevent outright liquidation which would have had systemic consequences on the financial system and undermined or eroded public confidence in the banking system. The corporation took over assets of the critically distressed banks and assumed liabilities in the three bridge banks.
The Bridge Bank mechanism had a salutary effect on the banking system as it preserved and sustained operations of the three banks in all their branches and allowed over 3.7 million depositors to continue to enjoy banking services in the premises of the affected banks. In the process, over 6,000 jobs were saved in the banking system and no depositors lost their funds, a condition hitherto absent in our financial system.
Some of the amendments the NDIC is seeking are akin to what the Federal Reserve in US is doing under Comprehensive Capital Analysis and Review. The review by the Federal Reserve was implemented in the aftermath of the 2008 financial crisis. The review tested US banks’ ability to lend to households and businesses even in times of stress. Banks that failed the tests, which means they have high risks, were forced to suspend dividend payments to shareholders, and international lenders can be prevented from sending their earnings back to their parent companies. These are drastic measures but measures which are needed to protect the depositor.
All banks with more than $50bn in assets in the US are subjected to  annual examinations .The 31 lenders tested this year  together account for roughly 80 per cent of the banking sector. They were all deemed to have enough reserve cash to deal with a shock, but the Federal Reserve found fault with Santander and Deutsche Bank’s financial plans according a BBC news report.
In this drama between NDIC’s need to strengthen  its legal framework to ensure it performs its function better and the panicky resistance from the CBN for fear of its  perceived danger of losing  some of its role as apex banker in the country, the interest of the depositor must prevail. The National Assembly will be the ultimate judge. Will it help protect the banking public and the depositor, or will it protect some archaic legal frameworks that hinder the operations of other equally important financial regulatory institutions in the country?
The NDIC and the CBN have always cooperated in designing our macroeconomic policies. This cooperation should also focus on protecting the depositors’ interest. After all the depositors are the lifelines of our banking systems.
Hassan is an Abuja-based financial analyst