It could be essential to revisit the regulation of smaller banks within the wake of the collapse of Silicon Valley lender SVB, says Sim Tshabalala, chief govt officer of Customary Financial institution Group.
Talking on the 2023 African Central Financial institution Convention in Johannesburg, which Customary Financial institution is internet hosting and sponsoring, Tshabalala mentioned that whereas it’s nonetheless too early to make definitive pronouncements on the causes of the collapse of the tech-focused SVB and the New York-based Signature Financial institution, which had many purchasers concerned in crypto, there aren’t any credible indications that there could also be a wider contagion spreading from the autumn of two banks.
Tshabalala mentioned that SVB’s slim give attention to serving enterprise capital and startup corporations made it particularly susceptible to adjustments in rate of interest hikes. It additionally meant that the establishment was not serving the right social and financial capabilities that banks usually carry out.
“Despite the fact that SVB introduced itself as doing a brand new sort of banking that may be a extra revolutionary and complex sort of banking, they had been doing very old style banking, and never even very properly at that,” he mentioned.
Whereas it might be surmised that the regulatory system designed within the wake of the 2008 disaster had proved equal to the duty of stopping wider contagion, a lesson from the collapse is that industrial banking should be correctly regulated in a way of mutual respect, understanding and cooperation between companies and regulators, he mentioned.
“Industrial banking can not perform sustainably with out shut supervision,” he argued.
He praised the immediate takeover of the UK division of SVB by HSBC, arguing that it demonstrated that belief and understanding between HSBC and the Financial institution of England might facilitate immediate motion to soak up a possible systemic shock to the banking system.
Classes from Nigeria?
Additionally talking on the convention, Godwin Emefiele, governor of the Central Financial institution of Nigeria, was much less impressed with the regulatory response to the occasions. He mentioned that the anti-inflationary measures adopted by central banks around the globe had led to tighter market situations which had made crises such because the collapse of SVB and Signature Financial institution extra doubtless.
“We all know why banks collapse so why will we not take the regulatory measures to forestall them from occurring?”
He argued that the Nigerian banking system has strong laws in place which give enough safety to banks within the case of a run.
“Nigeria is among the few international locations on this planet the place banks must preserve a specified proportion of monies raised with the CBN. Banks additionally must preserve a sure degree of liquidity and preserve a capital adequacy ratio. In our legal guidelines, after tax, 23% of your income should be saved in a statutory reserve fund to spice up your capital adequacy ratio.”
He proposed that regulators should undertake comparable measures to guard their banks from crises and depositors.
Following the 2008 disaster, he mentioned, banks in Nigeria got here collectively to type the Asset Administration Company of Nigeria, to which banks in Nigeria contribute as insurance coverage towards crises.
“We should be sure that we shield depositors, who’re the true house owners of the banks,” he concluded.
Supply: african.business
