Flagging bank reform could take heart from Nigeria

May 5, 2011

By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Nigeria isn’t the obvious source of sound financial advice. But as part of a post-crisis cleanup, the central bank of Africa’s most populous nation fired the bosses of flailing financial firms. If only Western officials would talk and act so plainly, financial reformers might take heart.

Many developed-world bank critics would approve of Nigeria’s approach. Warren Buffett said at the weekend that any companies that needed rescuing by the government — along with their spouses — should end up “dead broke”. But that hasn’t happened in the United States or, say, the UK. But it did, more or less, in Nigeria.

Readers familiar with Nigeria’s infamous email scams may find the comparison risible. But against expectations Nigerian officials managed to make last month’s elections the fairest in years, according to observers. That gives some credibility to the central bank’s efforts to clean up the financial sector.

Lamido Sanusi, the Nigerian central bank governor, initially identified five banks that were in trouble. “I am satisfied these five institutions are in a grave situation and that their management have acted in a manner detrimental to the interest of their depositors and creditors,” he said in an August 2009 speech that’s become a must-read among financial policy wonks in Washington and elsewhere. He fired the banks’ top brass.

It’s unclear whether Sanusi’s efforts then and since — which included sacking the bosses of three more banks, bailouts on tough terms, and stiffening rules on capital and proprietary trading — will ultimately stick. After all, he started with a serious mess. In one case, a bank borrowed money and bought private jets that were registered to the CEO’s son. In another, bosses set up a vehicle funded with depositors’ cash to buy shares when the bank went public, bringing huge losses for depositors when the crisis hit.

That makes it all the more unexpected that Sanusi and his colleagues should try so hard to fix the system. His objectives seem sensible, comprehensive and bluntly expressed — characteristics that apply to few of the reforms carried out in the biggest financial markets. It all goes to show that reform ideas from Abuja deserve at least as much attention as those from Washington and Wall Street.


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Are you kidding, Richard?

What works in Nigeria doesn’t necessarily work in the US.

The only similarity we are talking about is banks.

In the US, Wall Street runs the government more than the other way round.

Forget it.

Posted by doctorjay317 | Report as abusive

You can be sure that future banks in Nigeria will be reluctant to run afoul of the law or the regulatory agencies.

In America, MBA’s with majors in investment banking carefully watched how America handled similar events.

If you are big enough, you only have to pay a modest fine to the SEC. CEO’s and CFO’s don’t go to jail. The DOJ won’t look twice in your direction.

Posted by breezinthru | Report as abusive