Wednesday, June 6, 2012

Still on amending the Central Bank of Nigeria Act


The decision to amend the CBN Act by Nigeria’s house of assembly has been received with a lot of criticisms from the media. In my reading however, I have seen little or no attempt by the media to actually put before the public how Central Banks in other countries operate.  So in the next few paragraphs, I write on how the Central Banks of the United States of America (USA), Canada and Germany operate in relation to their financial systems.
Sanusi Lamido Sanusi, Governor, Central Bank of Nigeria

The equivalent of Nigeria’s Central Bank is the Federal Reserve Bank in the USA. Like Nigeria’s Central Bank, the Federal Reserve Bank is in charge of monetary policy in the US but unlike Nigeria’s Central Bank, it is not solely in charge of bank regulation in the US.   It is usually referred to as the Federal Reserve System because there are 12 other regional reserve banks in the US in charge of regulating banks within their regions.

The Federal Reserve Bank, commonly referred to as the “Fed” is responsible for regulating the US monetary system and monitoring the operations of Bank holding companies. The Fed is controlled by a seven man board chaired by the Ben Bernanke, who can be referred as the Governor of the Fed. The Board also has a Vice Chairman. The Seven members of the board are appointed by the President and confirmed by the US Congress.

The Chairman of the board is also required to brief congress twice yearly on its conduct of monetary policy and economic developments and prospects for the future.

The Chairman of the board is also required to appear before the Banking and Financial services committee of Congress on scheduled dates to brief it on key issues about the economy as well as submit a detailed report on the economy to congress before its appearance.

The Congress also sets the salaries of the board members of the Federal Reserve System. For 2012, the Chairman's annual salary is $199,700. The annual salary of the other Board members (including the Vice Chairman) is $179,700.

The Federal Open Market Committee (FOMC) is the monetary arm of the Fed. It is made of the seven members of the Fed Board and additional five members selected from the Presidents of the 12 regional Feds who rotate their positions on a yearly basis except the Present of the New York Fed who is a permanent member of the FOMC.

The US Department of Treasury, the same as Nigeria’s Ministry of Finance, also has regulatory powers over the US banking system through the operations of two agencies it oversees, the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision, which regulate banks and savings and loans.  The Fed can also only offer financial support to failing banks with the collaboration of the Department of Treasury.

The OCC is responsible for licensing all U.S. banks and, more broadly, for ensuring the stability of the banking system while the Office of Thrift Supervision (OTS) is charged with supervising federally-licensed savings and loan associations, also known as "thrifts. The Federal Deposit Insurance Corporation (FDIC), with similar functions as Nigeria’s Deposit Insurance Corporation (NDIC) also has regulatory powers over the financial system while the Securities and Exchange Commission (SEC) regulates securities trading.

Canada.
In Canada, the Bank of Canada does not have supervisory powers over banks. Instead, it acts as a lender of last resort, supplier of emergency liquidity to banks in distress, fiscal agent to the Canadian government and issuer of currency. The Bank of Canada is thus mainly in charge of monetary policy and financial stability. The actual regulation of banks is the function of the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC).

The highest financial regulatory organ in Canada is the Financial Institutions Supervisory Committee (FISC) comprising the Superintendent of the OSFI, Governor of the Bank of Canada (equivalent of Nigeria’s Central Bank Governor), Chair of the Canadian Deposit Insurance Corporation, Commission of the FCAC and the Deputy Minister of Finance. The FISC is chaired by the Superintendent of the OSFI, meets quarterly and reports directly to the Minister of Finance. It is also interesting that the Minister of Finance has the power to set the monetary policy of Bank of Canada with the approval of the Canadian Parliament.

The German Bundesbank
The Executive Board governs and manages the Bundesbank. It comprises the President (equivalent of the Central Bank Governor), the Deputy President and at four other members. The members of the Executive Board are appointed by the President of the Federal Republic of Germany. The President, the Vice-President and one other member are nominated by the Federal Government; the other three members are nominated by the Bundesrat (the upper house of Parliament representing the Federal States) in agreement with the Federal Government.

Banking supervisory functions of the German Central Bank is jointly shared between it and the German Financial Supervisory Authority (Bafin) which is under the supervision of the Ministry of Finance.  Bafin is an integrated regulatory body with supervisory powers over insurance and securities trading. The Bundesbank audits the banks but has to take its findings to the Bafin which takes the final decision on the outcome of the audits.

A look at most regulatory models around the world shows that it is a close collaboration between the Ministry of Finance, the Central Bank, other regulatory bodies with the parliament offering  oversight and accountability. Most Central Bank’s independence is more  restricted to carrying out monetary policy decisions but not necessarily in non-monetary functions like bank supervision and regulation.  It is important that this distinction is made in the current debate about the autonomy enjoyed by the Central Bank of Nigeria.

But as I noted in an earlier post, the debate should go beyond amending the CBN Act to how the financial sector is regulated in Nigeria.

Watch a sceptics view of Central Banking
Alan Greenspan speaks on monetary and fiscal policy

2 comments:

  1. eToro is the ultimate forex broker for new and advanced traders.

    ReplyDelete