“Banking institutions are more dangerous to our liberties than standing armies”………Thomas Jefferson
For sometime now, the question of whether or not the CBN Governor has the power and authority to disburse a 420 billion Naira loan to five ailing private banks and inject same into the economy without first obtaining legislative approval has been in the front burner of public discourse.Let me say from jump street that I agree and identify with the intrepid steps the CBN Governor had taken up to this point., including the summary dismissal of the Bank directors. I admire his commitment to duty and rare gift of courage.
I see him as a man if given half a chance and not derailed by forces beyond his control, he could contribute in no small measure to the development of our economy and financial sector.
I disgree with those who compare the treatment of these bank executives to the treatment of their counterparts in the US. Here there is an element of fraud. Yes they were accused in America of jumbo pay packages, but whilst that could be said to be immoral it certainly was not illegal. Therein lies the difference.
Yes, I believe in the constitutional presumption of innocence, but where a prima facie case has been made after an investigation, such innocence can be proved in a law court and if found not guilty, restitution in various forms is available to the accused including reinstatement and compensatory or punitive damages for malicious prosecution. Such is the beauty of our justice system.
Even a reputation possibly damaged can be repaired by the courts and the accused can still be made whole.
On the assertion that a bank is in the business of lending money and a debtor cannot be prosecuted for taking a loan he is not able to repay, again the point is missed.
This also has an element of criminality because the accusation does not go simply the inability of the debtor to pay which is purely a contractual matter, but instead to his mindset and intention from day one or at any other time, not to pay. It is called theft or better still considering the staggering amounts, GRAND LARCENY.
However, in the wake of his very positive actions, the CBN Governor has left some residual but important questions which form the subject of this piece and which go to the heart of our democratic government.
It is not a mistake or error of judgment that two of the most advanced democracies in the world, the US and the UK which bailed out their ailing banking industry with 700 billion dollars and 500billion pounds respectively did so only with legislative and constitutional imprimatur.
Let it be clear however that in both countries and others around the world, the bail out was for a specific purpose , that is, the extension of credit facility so as to stimulate and jump start the economy.
It was not a federal assisted programme for thieving executives and criminals. It was to stop a bleeding economy caused by a mismanaged(not fraudulent) subprime mortgage system.
In the US, the resulting bailout was effected by an Act of Congress known as the EMERGENCY ECONOMIC STABILIZATION ACT 2008.
The Act even established a separate congressional oversight committee to monitor how the money given was spent. In the UK, Parliament authorized the bailout through the creation of the BANK RECAPITALIZATION FUND.
It is important to note that both central banks, the Federal Reserve Bank (US) and the Bank of England (UK) enjoy a degree of autonomy and independence the Central Bank of Nigeria does not enjoy.
This point only serves to underscore the recognition by the US and UK Central Banks of the importance of securing legislative approval in money matters despite their autonomy.
Prior to now, there had been several interventions in the United States to save the banking industry. In 1930, the United States had the largest industry failure in US history when 800 banks closed shop.
Congress promptly set up the RECONSTRUCTION FINANCE CORPORATION and went on to pass the EMERGENCY RELIEF ACT of 1932 which authorized the loan of 300 million dollars to ailing banks.
In the more recent savings and loan crisis which almost consumed the US economy, Congress again had to use its power and the instrumentality of the law in passing the RESOLUTION TRUST CORPORATION ACT to avert a major economic and financial crisis precipitated by the savings and loan industry.
Again the point to be made is that the authorization of the legislative arm as a sine qua non (condition precedent ) before public funds can be disbursed in any representative democracy has never in the history of a government of , for and by the people been in doubt..
The CURRENCY ACT passed by the US Congress even goes as far as fixing the maximum amount of currency that can be in circulation at any particular time.
The power of the US Congress in monetary matters is clearly stipulated in Article 1 Section 8 of the US Constitution and is more explicit than that of the Nigerian Constitution. But then what about the United kingdom that though has no written constitution, still recognizes the implicit power of parliament to control the purse?
It is pertinent to lay bare the provisions of our law vis a vis the right of the CBN to give loans or bail out five private banks that supposedly were about to go belly up.
The Governor in attempting to make his case as to why he believes he has the unfettered powers to inject 420billion Naira into the banks without more, essentially rests his argument on two grounds
1. That the money was a loan to the banks and not a bailout and therefore no approval was required.
2. That the money was printed by him and was not withdrawn from the consolidated revenue fund of the federation.
For these two reasons the CBN genuinely and in good faith felt he did not need to seek approval from the National Assembly. As a lawyer, a legislator and an elected representative, I beg to differ with the Governor on both grounds and find his arguments esoteric.
His first genuine but erroneous belief that the money was a loan and not a bail out and therefore can escape close legislative scrutiny and approval, is a misread of our constitution . It sounds like the term loan in this case is a euphemism.
For the avoidance of doubt, chapter 5 secion E of the constitution is actually titled “Powers and Control over Public Funds” and in Secton 80(3) it says:
“No moneys shall be withdrawn from any public fund of the Federation, other than the Consolidated Revenue Fund of the Federation, unless the issue of those moneys has been authorized by an Act of the National Assembly” and
Section 80 (4) goes on to state:
“No moneys shall be withdrawn from the Consolidated Revenue Fund or ANY OTHER PUBLIC FUND of the Federation except in a manner prescribed by the National Assembly”
What these two provisions are saying is simply that for there to be expenditure by government, it must be appropriated by the legislative arm.
Even more telling is section 80(4) which states that not just the withdrawal but alsothe manner of withdrawal e g time of withdrawal, form and mode of withdrawal and disbursement must be approved by the National Assembly.
The constitution does not make a distinction between a bailout or a loan. Neither does it restrict the withdrawal stipulated to a particular type.
The provision on withdrawal is not form specific. All that is needed is for there to be a withdrawal,THE CBN Govs argument is untenable, as even a loan requires for there to be a withdrawal before it can be disbursed.
Therefore , the possibility of a loan such as this is captured and adequately covered by the language of section 80. In other words any withdrawal even in form of a loan cannot be effected unless duly appropriated by the national assembly.
Again other democracies in the world as referenced earlier recognise,the absolute and long standing doctrine of checks and balances in the running of a democratic government.
To agree with CBN on this issue is to say the President either is exercising powers of appropriation, which he does not have through the back door, or the CBN Governor is the most powerful man in Nigeria. Both propositions are scary and have no place in a democratic setting.
The President certainly cannot exercise this ostensible power of appropriation. Jurisprudentially and specifically under administrative law, one cannot give what he does not have (Nemo dat quod non habet).
The 1999 Constitution in section 5(1) vests Executive Powers in the President and allows him to exercise the powers directly or through his ministers or heads of agencies.
The President can however not delegate a power he does not have, in this case the power of appropriation, to the CBN Governor. In other words what Mr President cannot do ,Mr Governor certainly cannot come close to doing.
Though the CBN Governor has awesome powers under the CBN Act, they stop short at spending unilaterally and without legislative approval
The second prong of the Governor’s two-prong argument, that the money withdrawn was not from the consolidated revenue fund but from the money he printed and therefore beyond legislative reach and oversight also cannot pass the smell test, let alone constitutional muster.
A careful reading of the constitution makes it abundantly clear that the authority , power unbridled and absolute control the Legislative arm of Government has over public funds and its power of the purse is not restricted to monies in the consolidated revenue fund.
Section 80 describes what monies cannot be touched without the National Assembly’s approval to include ALL PUBLIC FUNDS whether or not the funds form part of the consolidated revenue fund.
Well then, here is the question, is the 420 billion naira printed by the CBN governor public or private funds. I think the answer is obvious.
If public funds, then under section 80 it CANNOT be disbursed unless such is authorized by the national assembly.
The CBN Governor no doubt has the right to print money under the CBN Act. However the moment the money is printed it automatically and by operation of law becomes public funds held in trust for Nigerians and subject to the provisions of the constitution as they relate to public funds.
Unlike many of my colleagues who see some inconsistencey between the CBN Act and the Constitution, I believe the two can be read togeth without any conflict whatsoever.
Whilst the CBN Act gives the Governor the power to disburse funds , the Act presupposes that the disbursement of those monies must have been preceeded by legislative or parliamentary approval as stipulated in the constitution.
Yes, the CBN Governor under the Act can give out loans or bailout banks but only where such has been approved and appropriated as stipulated under the constitution. One is a precursor to the other.
It is incumbent on the Governor to present his proposal and request to the National Assembly and convince the National Assembly that there is a need for such a proposal. This can be done during appropriation, supplementary appropriation or at any other time by the national assembly through the creation of a contingency fund as provided for in section 83.
The Section reads:
“ The National Assembly may by law make provisions for the establishment of a Contingencies Fund for the Federation and for authorizing the President, if satisfied that there has arisen an urgent and unforeseen need for expenditure for which no other provision exists, to make advances from the Fund to meet the need”
Whilst the CBN may be the regulator and banker of last resort, it is the National Assembly that is the legal if not physical custodian of the taxpayers and peoples money with a special fiduciary relationship with the people on how the money is spent. This is the essence of participatory and representative democracy.
Surely, the CBN will not want to be accused of being guilty of giving out loans shrouded in secrecy and without sufficient collateral, an offence for which the banks themselves have been accused by CBN.
As we speak, the representatives of the people do not know the terms and conditions of these loans nor are they seized of any fact that will assure them that the banks are able to repay the loans back into government coffers. It is important to note that section 29(d) from where the CBN gets its authority to grant loans, provides that such loans must be adequately collateralized.
Had the CBN followed the procedural due process, the loan would most likely have been approved by the legislature, for the Governor talks a good talk and probably would have convinced most members of the need and proprietary of it.
Personally though, I would have opposed and argued against it For me, it would have meant rewarding the rich with a windfall and with taxpayers money. It comes across as a socialist policy favouring the corporate world (yes it sounds oxymoronic, for socialism to favour corporatism, but it is what it is) and Nigeria is not a socialist country, but a country that believes in laissez-faire and free market economy.
Injecting 420 billion Naira of public funds into private companies even if to save them from imminent collapse for me runs against the grain of privatization, the main thrust of government economic policy in the last 5 years.
Within my limited scope of knowledge in economic matters and with possible advise from those more knowledgeable, I would have considered very seriously, the possible consequences and effects of the impromtpu and knee jerk reaction of the injection of such a colossal amount into the system without notice.
Several possible effects come to mind:
1. The country could experience some sort of hyperinflation as experienced in the US even though the 700billion was released in two trenches of 350billion dollars.
2. The value of our currency could drop even further, again as experienced by the US dollar after the bank bailout.
3. Our National debt could rise astronomically, particularly where the loan is not repaid. The 420 billion Naira is an extra budgetary expense which increases the deficit and must somehow be paid for. In the United States, the 700 billion dollars though authorised by congress raised the US national debt to a whopping 11.3 trillion dollars.
These are the kind of arguments, issues and debates, both for and against that should come up on any legislative floor before a major government policy such as this can and should be taken by government.
That is democracy in action. It is called accountability and it is what gives power and sovereignty to the people whom we seek to govern and validates the axiom, power belongs to the people for whom their elected representatives hold their common wealth in trust. Their will must prevail at all times.
I would have argued against a bail out, loan , whatever the nomenclature or by whatever name or guise it is described.
Apart from the points illustrated above and the idea of government appearing to subsidise bank owners(for this is a form of subsidy), I really do think more than any bank or corporate body etc it is the nigerian masses that need a bailout!!
They are the ones that need to be bailed out of agonising poverty, bailed out of perpetual darkness and blackout, bailed out of sickness through the provision of good hospitals and a comprehensive and effective healthcare system, bailed out of ignorance with and assured a future through a sound educational system(not govt perennially quibbling with ASUU over salaries and work conditions)and generally given the basics that would afford them a decent standard of life and a decent living wage.
At least this bailout money or loan has opened our eyes of understanding that we can afford these things if the political will was there. The 420 billion Naira would have accomplished these to some significant extent. These are the kinds of bailouts we should be discussing as a government.
Again I personally shudder and find it incredulous that on one hand the President , his ministers and subordinates will make public assertions that the budget approved by he National Assembly and signed into law , and which contained various projects that would bring development and the ever so often elusive dividends of democracy to their constituents, would not be implemented because there was no money to fund it, then turn around just a couple of months later and with a stroke of the pen, or in this case a wink and a nod to the CBN Governor, approve rather surrepticiously, and furtively, the injection of 420billion Naira of the same constituents’money into five banks whose directors have been accused of fraudulently almost running the banks into the ground. Incredible!
No money to fund a three trillion naira budget for a whole country but suddenly and bingo half a trillion Naira appears from nowhere( sorry is printed from the CBN governors backyard).
Who is fooling who? I know we are better than this as a nation.
I decided to write this piece and put this on record because it appeared that many of those we represent did not appreciate the true position of the law and the full implications of a central bank going on a spending spree without any body or authority to hold it accountable or rein it in.
I hope I have one way or the other helped in painting a better picture of what is at stake and bringing one more national issue to the open for a more informed and thought provoking debate.
Post script:
“The State shall direct its policy towards ensuring-
That the material resources of the nation are harnessed and distributed as best as possible to serve the common good”
……Section 16(2)(b) Constitution of the Federal Republic of Nigeria 1999.
FEMI GBAJABIAMILA, LLB . JD
AC LEADER AND MINORITY WHIP
HOUSE OF REPRESENTATIVES
