First, the banking sector makes up close to 50% of the Nigerian Stock Exchange (NSE)’S market Capitalization. This level of concentration in the banking sector continues to pose a significant degree of systemic risk. This is wrong. The NSE should have triggers to ensure that the exchange is not out of balance in sector weights. Some of these banks as Sanusi noted used accounting gimmicks to falsify there books and records. Financial statements can no longer be relied on. Internal audit processes are weak. External auditors can skew results as unqualified once bank officers make contributions to the informal economy via unethical and corrupt practices.

The Lagos all share indexes has dropped close to 70% in 2007. There are ethical issues with trade positions and non public material information being made public to a few insiders. Sanusi is right because bankers all over the world have caused the public to lose confidence and while other nations like the US is taking steps to reduce systemic risk; some analysts in Nigeria fear that Sanusi has not struck the right tone. These analysts are wrong and are more than likely complicit in the growth of the pseudo informal economy that needs to be either formalized or eliminated.

Banks have accumulated bad debt on their books and do not have adequate loan reserve provisions. Nigerian Banks have used off balance sheet accounting and multiple special purpose vehicles (SPV)’s to hide losses and pad profits. Ethics and risk management needs to be the backbone of the executive cadre of banks. Creating risk management processes and formalized risk governance methods must be demanded by the new CBN chief. Executives must consider ethics in making business decisions and work to foster the best in class model at all there lines of business. Risk and ethics must be the responsibility of not only the executives but everyone.

CBN cannot set monetary policy, regulate and enforce them. The line among who sets fiscal policy has been largely a gray area for the most part. Since lawmakers do not understand the implications of the laws that they pass and look to the bankers for guidance. This circle has to be broken if the capital market must work; and indeed it must if Nigeria wants to become a player in the global economy where competition, innovation and protection of intellectual property thrives and will always reign supreme. Sanusi must bring a whip with teeth to the banking sector. Soludo brought a whip without teeth and has lead us to this warm pot. Sanusi must make sure the pot does not get hot and systemically burn down the entire capital market system.

Secondly, if the Nigeria banks are controlled by the government, then by all means Sanusi can remove the executives that have not served the interest of their shareholders. He would be negligent and unethical if he did not remove these CEO’s. In simple term banks carry consumer deposits as liabilities on there books and issue loans as receivable for which they pay interest on the liabilities and receive interest on the loans. They access fees for continued operations and issue stock to raise capital and grow. The growth can be organic or via acquisitions or mergers. That is simple enough correct? So what is the issue? For the new CBN governors threat to hold sway it is either the major deposits are controlled by the government or the shareholders have no say. If the later is the case, then we are doomed.

Banks such as UBA, Zenith, Oceanic, First Bank, have to look for ways of innovating and creating products that meet the needs of consumers in there home country before seeking greener pastures on other shores. If the demand conditions for the products they offer forces it to move offshore then so be it. If these banks do not innovate they will die. The global economic will I hope level the playing field but for these to happen each of the CEO must recognize that they must compete for the dollar or should I say the Naira; they must put the processes in place to foster growth.

We need a good payment system on a strong scalable technological platform that can sync with developed economies in a timely manner. The depository and clearing houses must be effective and have the full support of the Banks to invest in better delivery systems and R & D. We must develop a maintenance culture one that rewards long sustainability and infrastructural development. Africa and indeed Nigeria cannot survive in the global market place where India can perform all and every process for a fraction of the cost it takes in Nigeria. We need to develop technology and invest a portion of the profit banks make in research and development.

The question for us all and I hope you grapple with this; I know I do, is how we solve these issues. I would argue that it starts from the top with regulators who set standards and the premier monetary policy executive Mr. Sanusi has began the process by setting a welcome tone for all. We should all salute his courage, encourage it and ensure it is followed up with set “rules of the road”. These rules must be clear. These rules must be without “quid pro quo”. These rules must meet international standards and rebuild confidence in the capital market.