It may be necessary to revisit the regulation of smaller banks in the wake of the collapse of Silicon Valley lender SVB, says Sim Tshabalala, chief executive officer of Standard Bank Group.
Speaking at the 2023 African Central Bank Conference in Johannesburg, which Standard Bank is hosting and sponsoring, Tshabalala said that while it is still too early to make definitive pronouncements on the causes of the collapse of the tech-focused SVB and the New York-based Signature Bank, which had many clients involved in crypto, there are no credible indications that there may be a wider contagion spreading from the fall of two banks.
Tshabalala said that SVB’s narrow focus on serving venture capital and startup firms made it especially vulnerable to changes in interest rate hikes. It also meant that the institution was not serving the proper social and economic functions that banks typically perform.
“Even though SVB presented itself as doing a new kind of banking that is a more innovative and sophisticated kind of banking, they were doing very old-fashioned banking, and not even very well at that,” he said.
While it could be surmised that the regulatory system designed in the wake of the 2008 crisis had proved equal to the task of preventing wider contagion, a lesson from the collapse is that commercial banking must be properly regulated in a manner of mutual respect, understanding and cooperation between businesses and regulators, he said.
“Commercial banking cannot function sustainably without close supervision,” he argued.
He praised the prompt takeover of the UK division of SVB by HSBC, arguing that it demonstrated that trust and understanding between HSBC and the Bank of England could facilitate prompt action to absorb a potential systemic shock to the banking system.
Lessons from Nigeria?
Also speaking at the conference, Godwin Emefiele, governor of the Central Bank of Nigeria, was less impressed with the regulatory response to the events. He said that the anti-inflationary measures adopted by central banks around the world had led to tighter market conditions which had made crises such as the collapse of SVB and Signature Bank more likely.
“We know why banks collapse so why do we not take the regulatory measures to prevent them from happening?”
He argued that the Nigerian banking system has robust regulations in place which give adequate protection to banks in the case of a run.
“Nigeria is one of the few countries in the world where banks have to keep a specified percentage of monies raised with the CBN. Banks also have to keep a certain level of liquidity and maintain a capital adequacy ratio. In our laws, after tax, 23% of your profits must be kept in a statutory reserve fund to boost your capital adequacy ratio.”
He proposed that regulators must adopt similar measures to protect their banks from crises and depositors.
Following the 2008 crisis, he said, banks in Nigeria came together to form the Asset Management Corporation of Nigeria, to which banks in Nigeria contribute as insurance against crises.
“We must make sure we protect depositors, who are the real owners of the banks,” he concluded.
