Era of Huge Bailout Gone, Osinbajo Tells Bank

• Era of Huge Bailout Gone, Osinbajo Tells Bank

Vice President, Yemi Osinbajo, has said Deposit Money Banks (DMBs) must rethink their method of risk management as the era of unstainable bailout is gone.

The Vice President, who spoke at the Nigeria Deposit Insurance Corporation’s 30th anniversary in Abuja on Monday, bemoaned the huge funds used to bail out the banking sector.

He said, “First is the number of institutions, and implicit and explicit tools in our safety system and their sustainability. Perhaps the most significant challenge to the financial system that we have experienced so far was that bank crisis of 2009.”

“Going by the manner of resolution, it appears that the preferred option was the establishment of Asset Management Corporation of Nigeria – an option that cost something in the order of N5tn. Since then we have also seen the use of a mixture of bailouts and bridge banks.

“The problem, of course, is that the most reliable studies show that overly generous financial safety nets or system have generally tended to increase bank risks and systemic fragility.

“My respectful view is that there must be some rethinking of the short and long- term implications of the use of these tools and their sustainability in the coming years. A reference was made in the past that we may not even have that option of the AMCON-type bailout given the sheer amount of money that will be involved.”

The Vice President mentioned the significance of NDIC in stabilising the financial sector during the early days of privatisation, NDIC role in the failed banks crisis and the various professional and standard distinctions it had set through the years.