Understanding CBN/ NDIC action

The prevalence of banking crisis around the world over the past two decades has prompted government to innovate approaches to dealing with the problem. Official intervention to contain or resolve failed banks have become a common feature of financial systems in recent years. The benefit of the CBN/NDIC intervention on Skye bank can be organised […]

The prevalence of banking crisis around the world over the past two decades has prompted government to innovate approaches to dealing with the problem. Official intervention to contain or resolve failed banks have become a common feature of financial systems in recent years.

The benefit of the CBN/NDIC intervention on Skye bank can be organised into two broad categories. First, To stabilise the bank and avert panic. Secondly, to restore the bank to a healthy state, free from distress.

Writing on the issue, the M.D of NDIC said: “Unlike the other failure resolution options such as outright liquidation, which could result in delays in depositors’ access to their total funds, the Bridge Bank guarantees depositors uninterrupted operation of their accounts. The same benefits apply to the creditors of the failing bank, whose liabilities are assumed by the bridge bank.

On the whole, the Bridge bank ensures preservation and continuity of daily operations that were hitherto being undertaken by the failed bank throughout all its branches and guarantees all depositors immediate access to their deposits. It ensures that no jobs are lost in the resolution process. The adoption of the bridge bank as the resolution option of the defunct Skye Bank will save 6,000 jobs and ensure continuity of banking services in the 300 branches of the defunct bank.

“The shareholders have lost their investments as a result of the negative capital in the defunct bank and also for failing to recapitalise the defunct Skye Bank when required to do so by the Regulatory Authorities. The members of the Board and Management who contributed to the collapse of the defunct Skye Bank Plc will be investigated and prosecuted.”

He rounded up his intervention by saying the stability of the banking system cannot be over emphasised. The establishment of Polaris Bank Limited to replace the failed Skye Bank was done in the interest of depositors. Its establishment also protected the ex-employees of the failed bank by preserving their jobs.