How To Avert Financial Crisis, By ex-CBN Chief

Former Deputy Governor of the Central Bank of Nigeria (CBN) Obadiah Mailafia has called for proper monetary and fiscal coordination to avert a financial crisis.
Mailafia made the call in a paper entitled: Economic and Financial
Instability presented at the 23rd Annual Conference of Certified National Accountants organised by the Association of National Accountants of Nigeria (ANAN) in Abuja.

According to him, to avert financial crisis, structural reforms are vital as well as strong ethical codes by all stakeholders.
He suggested that international cooperation should be actively pursued, noting that “prevention is better than cure”.
“As a lesson for Nigeria, financial crisis derive from various complex sources and uncertainty is a real challenge. Financial crisis can lead not only to economic collapse but also political upheaval. All nations are vulnerable. There is need to strengthen micro and macro prudential regulations,‘’ Mailafia said.

He said that eternal vigilance is the price of liberty; Knowledge-based regulators; and Inter-regulatory cooperation,’’ he said.
He said that economic/financial crisis were often associated with a panic on the banks in which investors either sold off assets or withdrew from savings accounts with the expectation that the value of those assets would drop if they remain at a financial institution.
Mailafia mentioned types of financial crises like: currency crisis, sudden stops, foreign and domestic debts crisis and banking crisis.

The former CBN chieftain also noted that elements of financial crisis comprised money demand outstripping supply; when banks ceased to advance credits; demand for early loan repayment; and liquidation of financial assets.
He also mentioned increase in collateral requirements and frozen financial markets as elements of financial crisis.
Mailafia, however, explained that causes of financial crises included: banking panics, stock market crashes, speculative bubbles and crashes, currency crises leverage, Asset-Liability mismatch, regulatory contagion and sovereign defaults.