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Senate to split CBN

By Emmanuel Aziken

ABUJA—THE Senate Committee on Banking, yesterday expressed support for plans to abolish the Universal Banking scheme and was preparing plans to split the Central Bank into two distinct bodies for effective regulation of the financial services industry that will emerge.

Committee Chairman, Senator Nkechi Nwaogu, while welcoming the CBN’s plans lamented that the introduction of the universal banking scheme few years ago helped to erode the focus of the specialized banks in the struggle for viability by the licensed banks.

She particularly regretted the disappearance of the merchant banks which she claimed helped to deepen the financial services industry before the introduction of universal banking.

In support of the CBN’s plans, Senator Nwaogu said the Committee would present a bill to split the regulatory duties of the CBN into two for the purpose of strengthening the supervisory and regulatory duties of the apex bank.

Nwaogu’s reaction was against Monday’s disclosure by the CBN of plans to reverse the universal banking scheme introduced by the apex bank during the stewardship of Prof. Chukwuma Soludo of the apex bank.

She told Vanguard: “Yes we support the CBN directive as you would have noted that the introduction of the universal banking scheme has affected the specialized banking operations of many banks, especially the merchant banks which were involved in the provision of strategic long term credits to the economy.

“So, we welcome this and though we have not been officially informed I think it is one policy that I will support for the good of the economy.”

On CBN’s capacity to provide the required supervision to the different categories of banks that would emerge, Nwaogu said the plans would dovetail into the committee’s intentions to present a bill that would split the apex bank into two for specialized and effective supervision of the financial services industry.

She, however, did not give details of the shape of the regulatory framework that is envisaged under the plans.

Bankers have argued that the Central Bank of Nigeria has been experimenting with the economy various types of banking models. In the early days they said it was specialized banks that dominated the Nigerian landscape as directed by the CBN. They argued that the CBN in the early 70s adopted the rural banking programme which compelled all banks operating in the country to open rural branches. The programme was later abandoned because it could not meet the CBN set goals.

According to bankers, the Federal Government in the 80s again came up with the idea of community banking which sought to encourage banking culture at the grass root. The CBN, they note, took over the control and regulation of these community banks through its other Financial Institution Department and it could not manage them and they collapsed.

Reversal of universal banking
To replace community banks they further recalled that the CBN developed a framework for the conversion of community banks to micro-finance and as of today the scheme is also a monumental failure. Universal banking licence was introduced by the CBN before the consolidation exercise. At the time there were about 89 banks in the country.

Now bankers say the CBN is at it again to return to Niche Banking, a reversal of Universal Banking and the Senate agrees to the return with a proviso to split the function of the CBN as is done in most other countries.

Indications, according to some retired bankers, are that the Senate may adopt the British model of regulatory banking practice where a body known as Financial Services Authority is set up to regulate the financial markets while the Central Bank sticks to its core function of monetary stability and inflation monitory.

The Bank of England’s core purposes, for instance, is monetary stability.

Monetary stability means stable prices – low inflation – and confidence in the currency. Stable prices are defined by the Government’s inflation target, which the Bank seeks to meet through decisions taken by the Monetary Policy Committee.

According to those who know the workings of the financial system elsewhere “It is the   Financial Services Authority, an independent body that regulates the financial services industry in the UK. Its four main aims are to maintain confidence in the UK financial system, to promote public understanding of the financial system, to secure an appropriate degree of protection for consumers and to contribute to the reduction of financial crime.”

Financial services Act
The Financial Services and Markets Act of 2000 gave the FSA statutory powers which include: regulation, investigation and enforcement.

The FSA was set up by the Government and is funded by the financial service industry. Appointed by the Treasury, its board consists of a chairman, a chief executive officer, three managing directors, and nine non-executive directors, including the deputy chairman. The board sets out the FSA’s overall policy, but the day-to-day management is the responsibility of the Executive.

Most financial services markets, exchanges and firms are regulated by the FSA. It sets the standards by which they must operate and take action against them if they fail to meet the required standards.

While the FSA is operationally independent of the Government and funded entirely by the firms it regulates, it is accountable to Treasury ministers and through them to Parliament.  This perhaps is what the Senate may just do for Nigeria.


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