The Central Bank Act is not the law of Medes and Persia which can never be changed [Daniel, 6:15], neither is it written with a pen of iron which is impossible to erase [Jeremiah, 17:1]. Like every other law, it was made for a season and a reason and, most importantly, to serve the economic interests of the country and its people.
Whenever the realities that underscore a law change fundamentally, it is important to revisit that law. The change may be due to factors that are internal or external, local or global. But the most important thing is to ensure that the change is VERY necessary and is being propelled by objective, altruistic interests and forces.
I had argued last week that the recent strident call for the amendment of the CBN Act is unfortunately directed at the governor and that it appears that we have not been able to separate the CBN as an institution from the CBN governor as a tenured role-player. But while the amendment may have been propelled by mischief and Sanusi-bashing tendencies, some of these issues are objective while some are being raised even beyond the National Assembly.
As at now, some of the areas that are being proposed for amendment are compelling the CBN to present its budget to the NASS for approval [a constitutional provision]; separating the role of CBN governor from that of the chairman [not very common but is practiced]; subjecting its account to the sharp eyes of the auditor-general of the federation [CBN avers that it makes its audited account available annually even to NASS]; monitoring the way it supports the government [the NASS read about the last N620bn bail-out in the media just like everybody else]; and creating another institution to take over banking supervision. While presenting the CBN budget to the NASS is the crux of the matter [because of Sanusi’s unrepentant declaration that the lawmakers consume 25 percent of our national budget], I will start from the issue of an independent banking supervisory body.
Globally, under the emerging financial architecture [after the 2008+ crises], the conventional roles of central banks are being divided and their original life and death powers are being whittled down. This led Alan Blinder to raise this critical question in 2010: ‘How central should central banks be?’ [Journal of Economic Literature, 48(1) 123-133]. Charles Goodhart, a professor of Banking and Finance at London School of Economics, reviewed the existing practices and literature and opined that there is a consensus that central banks should manage monetary policy and financial stability but holds that central banks should not perform all the roles involved in monetary policy, financial regulation and supervisions because it would raise concerns about democratic legitimacy and about the ability of the governor and the board to manage such a large and diverse body, take the work of the central bank beyond its traditional focus, extend the banks safety-net too far and increase reputational risks [‘The emerging new architecture in financial regulation’, South African Reserve Bank Conference Series, 2010, pp.1-54].
The fact is that the financial regulatory architecture is changing and this change will eventually come to Nigeria. We did not have a National Deposit Insurance Corporation before and even NAICOM, which oversees the insurance industry, is already a part of that regulation. This becomes important if we recall that two years ago, the insurance industry was overrun by the banking sector.
Furthermore, under the universal banking model, the CBN was the overall regulator of everything financial in this country. Thus, as the environment changes, there is need to review the regulatory structure to increase its effectiveness and efficiency. The Financial Services Authority has become a regular feature in that recent past. And some countries have even gone beyond the FSA or its equivalent. Poland has the National Bank of Poland, Financial Supervising Authority, Bank Guarantee Fund and is about establishing a Systemic Risk Board. In Germany, the constitutional court has great influence and on the eurozone bail-out deals; it has always been eager to protect the Bundestag’s [junior arm of the legislature] prerogative over public funds. Thus, lawyers, not economists and bankers, are in charge when Euro-financial matters are raised.
In effect, we can review the regulatory architecture but it should not be done trivially because anytime we tinker with the operations of the CBN, we are also tinkering with the operations of our economy.
• To be concluded