Law Digest Spring 2013
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and mandate are now common place especially following the crisis. Given the fact that there is usually a long time lag between policy, actions and outcomes, mechanisms may be required for more frequent monitoring of central banks’ operations and processes. However, it is still generally accepted that the operational independence of a central bank is crucial to its function. Many issues relating to monetary policy and financial stability requires more objective and technical considerations and in some cases swift actions that should not be influenced, distorted or delayed by political ideals, pressures or processes.2 Central bank roles such as printing money, control and/ or influence over monetary policy, supervisory control and access to confidential information of local banks and other institutions relevant to their function, make them desirable tools of political control. Central Bank Governance Governance problems facing central banks may be more complex than those encountered by ordinary corporations (public or private) because of their multiple and interactive roles and characteristics. They operate as a bank and adviser to government and private customers, an insurer (lender-of-last-resort) and regulator, and thus face governance problems linked to the intrinsic opaqueness of the banking business and competing/conflicting interests.3 Further still, central bank mandates and measures are not always clearly defined or carried out in a definitive or predictable manner as, for example, with regards to the issue of financial stability. The broader focus on ensuring financial stability naturally entails wider, more extensive measures and responsibilities that may overlap with those of government and attract political attention and debate. While many of its decisions should ideally
be made with the requisite technical expertise of the central bank, decisions to commit public resources to a failing institution would seem, legitimately, to require a much more direct involvement of governments and legislatures.4 As such, there is a greater need for changes in central bank governance arrangements, with clear rules and processes of interaction with government.5 Advocates of central bank autonomy would simply argue for a review of the governance arrangements within the bank with greater emphasis on measures that induce greater transparency and accountability while still maintaining the bank’s autonomy. They argue that the risk is that ‘outside’ interference in central bank decision-making will not stop at those aspects where there is a legitimate role for governments, but will extend to areas in which independence is desirable and justified.6
the Federation’s Accountant-General. Under sections 8 and 10 of Act, the Governor, Deputy Governors and directors of the Bank are appointed by the President subject to confirmation by the Senate. The five directors are appointed
This article seeks to examine the ramifications of the Bill insofar as it changes the governance structure of the CBN
CBN Governance and the Bill The analysis of the Bill first calls into question its relevance. Is the current governance structure of the CBN adequate in providing for the necessary accountability, transparency and prevention of the abuse of power? Unfortunately, although the Act is commended for meeting ‘international’ standards, we argue that it does not go far enough in achieving these principles and more can be done but without encroaching on the autonomy of the CBN. Salient governance measures and shortcomings under the current Act: Under section 6 of the Act, the Board is constituted by the Governor (who is its chairman), four Deputy Governors, five directors, the Permanent Secretary of the Federal Ministry of Finance and
from outside the Bank not only to provide for the fair representation of the various sectors and stakeholders in the economy, but also to lend their skills in the functioning of the Bank, given that they must be persons that are recognised for their reputation, experience and expertise in matters such as law, economics, finance, etc. Hence both the Executive (through the President) and the National Assembly (through the Senate) have an opportunity to deliberate on, appoint or reject persons nominated for positions on the Board. The President may also remove any of them from office provided that he has the support of two-thirds majority of the Senate (section 11 (2)(f)). Further, Board members will be disqualified if found guilty of serious misconduct in relation to their duties under the Act (s.11 (2) (c)). Aside from the threat of removal or disqualification, the Board is kept in check through its interactions with the National Assembly and the Executive (through the President), by the submission of the auditors’ reports, the Bank’s annual accounts and reports and by attending hearings before the National Assembly and its committees. The official publication of the Bank’s annual accounts in the Gazette and other public domain
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