CBN Explains Rationale Behind ‘Too Big To Fail’ Banks

Speaking on the CBN’s motive for designating 8 commercial banks as ‘too big to fail,’ the Director, Banking Supervision of the Central Bank of Nigeria, Mrs. Agnes Tokunbo-Martins said the named banks are systemically important to the economy as their failure could have far reaching effect on Nigeria’s financial stability.

The implications of the designation for the banks is that banks are permitted to have 50% off their capital as subordinated debts or loans but if considered systemically important, they are required to have a capital that is 75% common equity.

This is because common equity is considered to be higher loss absorbency.

In terms of liquidity: “you’d have to have about 5% above the regulatory minimum which is 30%. She added that the average banks have about 50%, so their pronouncement does not place extra burdens on the said banks.

The MD of Cowry Assets Management Limited, Johnson Chukwu, avers that there is no bank that is too big to fail but the CBN has only identified banks whose failure could affect the banking system.

“Any bank could fail if they don’t manage their risk asset portfolio very well or if there’s a major fraud,” he said.

The banks named ‘Too Big To Fail’ are First Bank of Nigeria, Guarantee Trust Bank, Skye Bank, Access Bank, Diamond Bank, Zenith Bank, United Bank of Africa and Eco Bank.