Home Articles & Opinions CBN Governor and the institutional risks

CBN Governor and the institutional risks

by Our Reporter

The central bank of any advanced or advancing country is both crucial and critical to the regulation, monitoring, restraint and acceleration of the economic performance of an economy. One of the primary duties of the Central bank is to manage a nation’s money supply, interest rates policy, setting reserve requirements, acting as a lender of last resort to the banking sector during times of bank insolvency, managing inflation, pursuing growth enhancing and or growth restricting policies.  Decisions made in relation to money supply, interest rate policy and exchange rate policy may have positive and negative consequences to an economy. Their use and the extent to which they are applied as a tool of macro economic policy would therefore be dependent on the challenges being faced by an economy at the critical time.


The new designated governor of the CBN is undoubtedly a very competent CEO of a commercial bank. Zenith Bank has been one of the top 4 commercial banking institutions in Nigeria. Its foot prints are undoubtedly felt and seen world wide. However, the functions of a CEO of a commercial bank are very different from the functions of a governor of a Central bank. The CEO of a commercial bank does not(neither is he required) have to deal with macro economic policy in his day to day functions. A commercial bank deals with loans, deposits, branches, treasury functions, group profits, group losses, bank regulatory compliance obligations and its costs to the organization.   Macro economic policy is not one of his functions nor concerns. The choice of a CEO of a commercial bank that has no experience working in a Central Bank is an extremely poor choice especially where people with the requisite experience are available.  The CBN has many deputy governors.


Qualifications and skill set


The Minister of Finance went to great lengths (in order to reduce international investor panic and avert a run on the naira) to play up the experience of the current acting Governor of the Central Bank and her critical input to the successful management of the economy under Lamido Sanusi’s tenure at the Central Bank.   Make no mistake, Lamido Sanusi has been a successful CBN governor when viewed through the prism of the core functions of the CBN.  The CBN under him cleaned up a banking industry on the verge of collapse, reduced yearly inflation to 8% a year and maintained a stable exchange rate policy for the Naira. All three things have had critical macro economic advantages to the Nigerian economy and have provided the necessary comfort to investors into the Nigerian market. There is, more than ever, a need for the retention of institutional knowledge and policy continuity. This is best achieved by appointing, on a long term basis, the current acting Governor of the CBN rather than appointing an unskilled and ill experienced individual with little or no day to day knowledge of the macro economic challenges of the Nigerian economy nor the policies being used to act as a buffer to the reckless spending by the members of the Nigerian Federal, state and local governments.


Most advanced economies and companies tend to look for germane experience as the critical ingredient in candidate selection. If that cannot be found, then one looks for people with transferable skills as the next best option. Not the other way round! The current Chair of the American Federal Reserve served as vice chair of that institution between 2010-2014.  Additionally, the current head of the bank of England was once the head of the Central Bank of Canada. Both had direct relevant experience before taking up their current roles. That at the end of the day is what merit and advancement is all about

(i.e the selection of the most appropriately skilled and experienced persons for the job that exists). It may however be a good idea to appoint CEO’s of commercial banks as deputy Governors of the CBN where they spend at least 5 years as an understudy of a current CBN governor. That will allow such an individual to acquire relevant experience in the day to day functions of the CBN. This avoids a person spending half of his 5 year tenure learning on the job.


Ethnic Bias, Systemic Risk and Checks and Balances


Systemic risk is a critical risk factor that is being addressed the world over. The Collateral Debt Obligations product triggered a cascade of events that almost brought down the world economic system. In Nigeria, there is becoming a picture where all heads of the financial regulatory space in Nigeria are being held by members of the same tribe.


The heads of PENCOM, NAICOM, AMCON, SEC, NSE, Investment and Securities Tribunal, Sovereign Wealth Fund, Minister of Finance, coordinating minister of the economy and now CBN will be of the same tribe.  There is also a subsisting tendency in Nigeria for people to defend, to the hilt, the egregious conduct of a person in government once it is ascertained that that person shares the same tribal affiliations. Thirdly, there appears to be a mad rush to establish a new tribal power equation in Nigeria. The confluence of these three subsisting trends in Nigeria presents very real systemic risk exposure for Nigeria and its economy. Would either of these individuals be likely to expose the egregious conduct of one of their number if it is felt that it would open their tribe to acerbic criticisms with tribal connotations? Can Nigerians be sure that critical financial policy formulation will not be made with the sole or perceived purpose of advancing such a tribe to where its members believe it was before the civil war? In making decisions that will have wide ranging impact across Nigeria, are people of the same ethnic group more likely to see issues from the same vantage point and less likely to take on board critical issues important to the economic interest of other geo-political zones in the country? The risks are truly grave.


Senate Oversight Function


The senate has been given the job of approving and confirming any nominee for certain jobs by the President. It is therefore the job of the senate to act in a way that avoids and prevents systemic risks and ensures the appointment of appropriately qualified and experienced people into critical jobs. Former Senate President Nnamani led the non confirmation of a SW appointee of former president Obasanjo because at the time two other positions within the finance bureaucracy of Nigeria were held by SW indigenes. He cited the need for federal character and balance. The situation today is ten times worse.


It is time for the senate to be alive to its functions and responsibilities (as the President of Nigeria is obviously is not alive to his). The time for the senate to act is now. It will be inimical to Nigeria if the senate confirms the designated nominee for CBN Governor for the reasons stated above.


Dele Awogbeoba



You may also like