The Nigeria Deposit Insurance Corporation (NDIC) has urged regulators in the banking industry to draw supervisory lessons from the failure of Silicon Valley Bank and Credit Suisse by ensuring proper risk management.
Mr Mustapha Ibrahim, the Executive Director (Operations), NDIC, gave the advice at the Chartered Institute of Bankers of Nigeria (CIBN) advocacy dialogue series 7.0, held physically and virtually, on Thursday in Lagos.
The discussions were under the theme: `Failure of Silicon Valley Bank in USA: Global Impact and Lessons for the Nigerian Financial System.’
The CIBN Advocacy Dialogue Series is a thought-leading program created to empower various stakeholders with knowledge on emerging issues affecting the banking industry and the economy.
The series typically features subject matter experts and operators with the aim to generate ideas that can help individuals and organizations make better and informed decisions amid challenges in matters relating to banking, finance, and the economy, at large.
Giving illustrations from the insights provided by Clive Briualt, Chairman of the Toronto Centre, Ibrahim drew up 10 lessons that financial supervisors in Nigeria should leverage.
According to him, there is a need for financial sector managers and regulators to, first and foremost, understand the business that they are involved in.
He explained that knowing the nature of the business would help in structuring and regulatory approach as well as aid supervisors’ understanding of the business on both sides of the balance sheet — liabilities and asset sides.
Ibrahim urged supervisors to bear in mind the dangers involved in rapid growth expansion and treat it as a warning sign of higher risk.
He called on supervisors to understand the nature of deposit risks.
“It is not just enough to mobilize deposits but there is a need to know the behavioral pattern and nature of the depositors,” Ibrahim said.
According to him, supervisors have to understand the nature of the markets to be involved, the need for stress testing, consideration of the issue of recovery planning, crisis preparedness, among others.
He, therefore, charged Nigerian banks to prioritize risk management, responsible lending practices, market awareness and collaboration with regulators.
This, he said, would help in ensuring that they were operating in a sustainable and responsible manner while supporting the growth of the local tech and startup industries.
Ibrahim also explained that effective regulation and supervision of banks had the potential to make banks less likely to fail and also contribute to the stability and robustness of the financial systems.
Earlier, Dr Ken Opara, President/Chairman of CIBN, noted that Silicon Valley Bank was one of the most prominent lenders in the world of technology start-ups.
Opara said that it had grown extraordinarily fast, with total assets almost doubling from $116 billion at the end of 2021 to $216 billion at the end of 2022, making it the 16th largest bank in the U.S.
Opara, who was represented by Prof. Pius Olanrewaju, First Vice-President, CIBN, noted that the bank, however, collapsed for multiple reasons which sent shockwaves through the financial system, reviving memories of the global crisis in 2008.
“This occurrence has sparked a chain reaction of similar failures, including Credit Suisse, First Republic Bank, Signature Bank and Silver-gate Bank while amplifying the need for experts across the globe to discuss the systemic issues plaguing the U.S. banking system, the regulatory gaps as well as its global impact.
“Additionally, policymakers and regulators are sifting through the rubble to consider what steps must be taken to prevent a similar crisis from occurring again.
“It is important to state that this event, of course, happened in the United States, however, because the world is inextricably linked by globalization, could greatly destabilize markets and economies around the globe.
“So, it is pertinent to discuss the global impacts to extract insights to strengthen the banking system and ways to further improve the operational efficiency of Nigerian banks, in particular,’’ Opara said.
