Referencing the CBN's "judge and juror" dilemma on nigerian banks

I read the news concerning the disagreement between the Nigerian Deposit Insurance Corporation (NDIC) and the Central Bank of Nigeria, (CBN) from several online channels but was delighted with the reporting by Vanguard online.

Judge on right, juror on left!

Credit: Plum on flickr

I believe the two heads of those institutions, Godwin Emefiele, the CBN Governor, and the NDIC Managing Director and Chief Executive Officer, Alhaji Umaru Ibrahim, assuaged many consciences when they kept making reference to the depositors interest and the interest of the banking industry. I also believe the case in point, whether NDIC was seeking “judge and juror” powers (methinks he meant “jury’?), was a dilemma – none of the offered possibilities which are the points in contention are practically acceptable.

I’ll reference two points outlined in innocence in the Vanguard article.

One wonders what a bank would think if accused to have “grievously violated its obligations under the NDIC Act?” That accusation rests with the CBN to decide when and how. If the NDIC and CBN do not agree on how grievous a violation is, a bank would always resort to CBN’s definition as its only protection.

Secondly, a bank that is contesting its proscription in court has not been found guilty. It has a duty to its depositors and would fight with its teeth to keep those depositors. But, when the NDIC has decided that the depositors would have to be protected and advise them to go for their deposits, then, she has decided the bank was guilty as charged when the court has not rendered a verdict. By the way, the NDIC issuing such a prescription to depositors and the bank winning in court would be a tragic case for the shareholders and investors concerned, not to talk of the health of the banking industry. Whatever way you look at it, the bank's losing at court or the depositors asking for their deposits would mean the bank was insolvent. But what if the bank won? That would be jungle justice.

The NDIC should not play “judge and/or [sic] jury”; which should it play?

It’s a question of the CBN and the NDIC needing a consensus on "powers of oversight over banks." I really do applaud the attempt being made by Alhaji Umaru Ibrahim to rope in banking subsidiaries into the NDIC net. It’s a loophole that’s been gaping for a long time.

Talking of dilemmas and choices, which ironically was the subject of my cartoon the day after, the depositors and banks fall into this situation. Depositors would be said to be facing a “double bind” dilemma, while banks would be placed in a “Morton’s Fork” by the NDIC when considering a litigation.