CBK should manage the banking sector prudently

Several truths about the banking sector make it a most delicate sector, demanding utmost care management. Truth one. There is no bank big enough to withstand its customers' loss of confidence. The "too big to fail" concept, as the Americans learnt in the financial crisis of 2008, is a myth. The entire banking sector is built on trust and the role of regulators in enforcing prudent banking guidelines is to ensure that this trust is not built on quicksand. If customers suspect a quicksand base, no bank, however strong, can withstand a run on its deposits, for there is no point at which banks hold cash equivalent to their deposits.

In the same way no economy can withstand a series of run on its banks without irreversible damage. The politically instigated collapse of the "African Banks" in the 80s and 90s injured the economy to an extent that we are yet to recover from. After the recent collapse of Imperial Bank and this week's unfortunate collapse of Chase Bank, the writing is on the wall for all but the Big Six, and unless the regulators take some immediate restorative action to stave off a domino run, we are headed to a financial crisis of momentous proportions.