CBK, Treasury row will erode investor confidence

Central Bank of Kenya. FILE PHOTO | NMG 

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Summary

• The Draft Financial Markets Conduct Bill 2018 published last week has brought to the public arena policy differences that should have been best fought behind the scenes.
• Indeed, this week we have been treated to the rare spectacle of the CBK governor making a public, no holds barred attack on the Treasury over what he terms as an effort to emasculate the institution he leads and reduce it to a mere observer.
• It was also instructive that the governor said that he had seen the Bill for the first time when it was published on the Treasury website, meaning that there was no consultation between the institution he heads and the Treasury during the drafting.

The emergence of deep seated differences between the National Treasury and the Central Bank of Kenya (CBK) on how to oversight the key banking sector have the potential of destabilising the economy at a time when all energies should be directed at nurturing recovery after the 2017 turbulence.

The Draft Financial Markets Conduct Bill 2018 published last week has brought to the public arena policy differences that should have been best fought behind the scenes.

Indeed, this week we have been treated to the rare spectacle of the CBK governor making a public, no holds barred attack on the Treasury over what he terms as an effort to emasculate the institution he leads and reduce it to a mere observer.

It was also instructive that the governor said that he had seen the Bill for the first time when it was published on the Treasury website, meaning that there was no consultation between the institution he heads and the Treasury during the drafting.

It has been evident for a while that there has been a quiet battle over how to regulate the banking sector, especially with regard to closure of troubled banks.

The argument is that the Bill effectively usurps the powers of CBK to regulate banks and vests them in the Treasury — which will appoint five members to the proposed Financial Markets Conduct Authority’s board. The Treasury CS will also sit in there.

This spat has the potential of eroding investor confidence in the Kenyan economy, which is built largely on the knowledge that Kenya has a robust and well-regulated financial sector.

It also raises the question of the Treasury’s capacity to oversight banks at a time when its in-tray is full of fiscal policy issues such as the fast growing national debt, gaping revenue shortfalls and finding money to bankroll the ambitious “Big Four Plan” of the Jubilee administration.

CBK too does have room for improvement, but it remains an independent and functional regulator whose actions have helped maintain financial sector stability.

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