|
Economic Confidential,
September, 2009
Central Bank of Nigeria Abuja
PRESS STATEMENT
Clarification on CBN Intervention in Five Banks
The Central Bank of Nigeria has noted with interest and concern
comments on the legality or otherwise of the injection of N420
billion into the five banks whose Managing Directors were removed
and the suggestion that the CBN Act be amended in view of an alleged
conflict with the constitution and wishes to clarify as follows:
1.
The core mandate of the CBN among others, are monetary policy
formulation and implementation and the promotion of a sound
financial system. It was in pursuance of these objectives that the
CBN provided liquidity support to the five banks. The injection of
N420 billion into the five affected banks is neither equity nor a
bailout by government but the normal and statutory central banking
function of lender of last resort to deposit money banks facing
acute liquidity problems. The loan is an accommodation facility
intended to improve the liquidity position of the banks to enable
them meet their obligations and will be repaid. The CBN Act
empowers the CBN to manage money supply in the economy through
different mechanisms. The CBN, as banker to other banks, has been
increasing money supply by lending money to the banks through the
Expanded Discount Window (EDW) and the injection of the N420b into
the five banks is similar to that function. The money is not from
the government treasury and the CBN does not require any
appropriation by the National Assembly in order to perform this
function which in any event, is not often foreseeable.
2.
It should further be noted that the Constitution of the Federal
Republic of Nigeria 1999 authorizes the expenditure of public fund
outside the Consolidated Revenue Fund of the Federation and outside
appropriation, provided such expenditure is authorized by an Act of
the National Assembly. In this regard, Section 42(2) of the CBN
Act, which is an Act of the National Assembly provides as follows:
“Notwithstanding the provision of Section 29 (1)(c) and
34(d) of this Act, the Bank may grant loans and other accommodation
facilities at such rate of interest and on such terms as the bank
may determine, to any bank which may be having liquidity problems.”
3.
Therefore, the call for the amendment of the CBN Act is rather
unfortunate as there is no conflict whatsoever between the relevant
sections of the CBN Act regarding liquidity management/liquidity
support for distressed banks and the relevant sections of the
constitution regarding appropriation by the National Assembly of all
government expenditure (Section 80(1) of the 1999 Constitution of
the Federal Republic of Nigeria). Thus, any attempt to amend the CBN
Act to prevent the CBN from playing its role of lender of last
resort will not only be counter-productive but unprecedented in the
history of central banking in the world as this would simply make it
difficult for the Central Bank of Nigeria to perform its vital role
of ensuring the safety and soundness of the financial system. There
is no central bank in the world that has to have appropriation from
the legislature to perform the vital functions of lender of last
resort. And while it is not all central banks that have the mandate
to directly supervise banks or even print currency, ALL central
banks have responsibility for monetary policy/price stability of
which the lender of last resort function is a critical component.
It should also be noted that this function is similar to the Ways
and Means Advances the CBN is statutorily authorized to extend to
the Federal Government to cushion temporary budget deficiency under
the CBN Act.
4.
The CBN is a responsible corporate citizen and will not act
illegally or in any manner that is contrary to the dictates of the
constitution. The CBN is committed to ensuring the safety,
soundness and stability of the financial system and will continue to
take all necessary measures to protect depositors and members of the
investing public.
SIGNED
M.M. ABDULLAHI
CORPORATE AFFAIRS,
CENTRAL BANK OF NIGERIA |
