Experts said the collapse of Silicon Valley Bank (SVB) has necessitated the need for stronger regulation and supervision to achieve a sound, stable and healthy financial system.
The observation came shortly before the renewed fear over the possible spread of the contagion with the First Republic Bank currently gasping for breath.
On Tuesday, the bank’s share tumbled about 50 per cent after it disclosed that depositors pulled out over $100 billion, leading to a loss of about 40 per cent of its deposits. The panic triggered fear of more bank collapse despite the liquidity buffer provided earlier.
Amid the panic, Nigerian experts called for tighter supervision of banks even though the Central Bank of Nigeria (CBN) had assured that Nigerian banks do not have links with the troubled foreign lenders.
The experts made the call at the seventh edition of the Chartered Institute of Bankers of Nigeria (CIBN) Advocacy Dialogue Series jointly organised with the Association of Enterprise Risk Management Professionals (AERMP).
Speaking on the theme, ‘Failure of Silicon Valley Bank in the U.S.: Global Impact and Lessons for the Nigerian Financial System’, President/Chairman of the Council of CIBN, Dr. Ken Opara, said the failure of SVB has sparked a chain reaction of similar failures, including Credit Suisse, First Republic Bank, Signature Bank and Silvergate Bank.
He said it also amplified 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.
Opara said the incident could greatly destabilise markets and economies around the globe, hence, the need for an urgent discussion on the global impacts.
He also called for insights to strengthen the banking system and articulation of ways to further improve the operational efficiency of the Nigerian banks in particular.
“As we join other industry experts to critically examine the occurrence, this event would help us gain insights specifically on, an overview of the Silicon Valley Bank collapse and its implications in the Nigerian and global contexts, the risks involved in the bank’s failure and appraise the management of same to improve risk and compliance functions in the Nigerian financial system as well as how to mitigate such occurrence and ensure safety, soundness and stability in the banking industry in Nigeria among others,” he stated.
A professor of accounting and financial development at Lead City University, Godwin Oyedokun, said the bank’s collapse on the heels of the FTX scandal, shines a spotlight on financial regulation across the world and puts it under scrutiny again.
Oyedokun said the U.S. and the U.K. regulators would almost certainly take another hard look at financial regulations, paying attention to liquidity coverage and capital adequacy ratio.
According to him, many startups and other emerging businesses rely on the financial backing and expertise of institutions like SVB to grow and develop, adding that the collapse of such a major player could have a chilling effect on investment in the sector.
He said Nigeria is home to some of the most successful Silicon Valley-backed startups, noting that it is not surprising that some of these startups maintained different forms of business relationships with SVB either as an investor or bankers.
Oyedokun said if Nigerian financial institutions are serious about servicing and funding the very successful tech space with its multitude of international investors, they should demonstrate strong financial regulation compliance.
He said, while the Central Bank of Nigeria (CBN) performs financial stability and monetary policy roles in the economy, the fulcrum of its financial stabilisation role rests on the effective regulation and supervision of the banking sector.
According to him, supervision entails not only the enforcement of rules and regulations but also exercising judgment concerning the soundness of a financial institution’s assets, capital adequacy, operational performance, corporate governance and management.
He also noted that Nigerian startups with significant exposure to the Silicon Valley Bank collapse, need to take immediate steps to mitigate the negative effects that could be occasioned by severe liquidity challenges.
“This latest bank failure shines a spotlight on financial regulation but given the added context of the global tech industry, more questions need to be asked about the way tech is funded and why traditional financial institutions appear unwilling to meet the capital needs of startups
“A significant amount of global tech and venture capital funds were concentrated in a single financial institution and the effect of its collapse is reverberating across the globe
“Now, if ever, is the time for the financial services industry to revisit its approach to funding innovation, and Nigerian financial institutions need to ensure that they are not left behind
The Executive Director of Operation, Nigeria Deposit Insurance Corporation (NDIC), Mustapha Mohammed Ibrahim, said the collapse of the Silicon Valley Bank, Signature Bank and Credit Suisse provided valuable lessons for regulators and supervisors as well as bankers in Nigeria and around the world.
He said by prioritising risk management, responsible lending practices, market awareness, and collaboration with regulators, Nigerian banks can help to ensure they are operating sustainably and responsibly while supporting the growth of the local tech and startup industries.
On the part of regulators, Ibrahim said effective regulation and supervision of banks has the potential to make banks less likely to fail and also contribute to the stability and robustness of the financial systems.
He noted that timely and effective resolution of failing or failed banks is imperative to sustain public confidence in the banking system.
Ibrahim also noted that delay in taking prompt corrective action(s) increases the cost of resolution.
He said resolution authority must be supported by the judicial system in handling failed bank cases, particularly in asset realisation in the interest of depositors.
He also stressed the need for cooperation and collaboration of all the safety-net participants.