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THE GLOBAL FINANCIAL CRISIS AND 

FINANCIAL REFORMS IN NIGERIA 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTERNATIONAL MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

NOVEMBER 16, 2010 

Printed for the use of the Committee on Financial Services 

Serial No. 111–165 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON INTERNATIONAL MONETARY POLICY AND TRADE

GREGORY W. MEEKS, New York, Chairman 

LUIS V. GUTIERREZ, Illinois 

MAXINE WATERS, California 

MELVIN L. WATT, North Carolina 

GWEN MOORE, Wisconsin 

ANDRE ́ CARSON, Indiana 

STEVE DRIEHAUS, Ohio 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

GARY G. MILLER, California 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

MICHELE BACHMANN, Minnesota 

ERIK PAULSEN, Minnesota 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

November 16, 2010 ........................................................................................... 1 

Appendix: 

November 16, 2010 ........................................................................................... 19 

WITNESSES 

TUESDAY, NOVEMBER 16, 2010 

Moss, Todd J., Vice President and Senior Fellow, Center for Global Development ...................................................................................................................... 8 

Oteh, Arunma, Director-General, Securities & Exchange Commission of Nigeria .......................................................................................................................... 5

Sanusi, Lamido, Governor, Central Bank of Nigeria ............................................ 4 

APPENDIX 

Prepared statements: 

Meeks, Hon. Gregory ........................................................................................ 20 

Moss, Todd J. .................................................................................................... 25 

Oteh, Arunma ................................................................................................... 27 

Sanusi, Lamido ................................................................................................. 40 

(1) 

THE GLOBAL FINANCIAL CRISIS AND 

FINANCIAL REFORMS IN NIGERIA 

Tuesday, November 16, 2010 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INTERNATIONAL

MONETARY POLICY AND TRADE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 3:10 p.m., in room 

2128, Rayburn House Office Building, Hon. Gregory W. Meeks 

[chairman of the subcommittee] presiding. 

Members present: Representatives Meeks, Driehaus; and Miller 

of California. 

Chairman MEEKS. This hearing of the Subcommittee on International Monetary Policy and Trade will come to order. 

We will have opening statements for the record, and without objection, all members opening statements will be made a part of the 

record. 

We have some extraordinary witnesses here today. 

I will recognize myself for the first opening statement, and we 

will move on. I hope that we are not interrupted by votes, but we 

will try to do as much as we can as we are trying to wrap up the 

111th Congress. So there is a lot that is going on. 

But, before I begin, I would like to thank Representative Miller 

for working hard and helping organize and bringing this critical 

hearing on the financial crisis impact on Africa and the reforms 

being implemented by Nigeria. He has been an extraordinary partner in the 111th Congress, and I look forward to continuing to 

work with him in the reverse roles in the 112th Congress. 

Mr. MILLER OF CALIFORNIA. Absolutely. 

Chairman MEEKS. I think that how we have worked and conducted ourselves on this subcommittee is an indication of what 

America wants, folks working together. You have been very cooperative, and we have been working very closely together, and I look 

forward to continuing to do that. 

I would also like to thank our distinguished witnesses for agreeing to testify before Congress today. In particular, I would like to 

thank Governor Sanusi and Director Oteh for traveling all the way 

from Nigeria to testify before the subcommittee. 

It is quite uncommon for senior government officials from another country to agree to testify before the United States Congress, 

but these are unusual times in which we live in. The global financial crisis from which the world is only beginning to emerge continues to hang over many nations’ recovery plans. Most emerging 

2 

markets, including Nigeria, were adversely impacted by the secondary effects of the crises in the form of collapsing demand and 

prices for their primary exports as well as dramatic decrease in remittances. 

Over the past 2 years, I have been privileged to lead two bipartisan congressional delegations to the continent of Africa. These bipartisan delegations focused on the impact of the financial crises 

and global recession in Africa, the programs implemented by the 

multilateral institutions to prepare African nations for the expected 

effects of the crises, as well as the support the continent received 

to cushion the impact of the crises. 

In February of 2010, Chairman Melvin Watt and I co-led a bipartisan delegation to Nigeria where we had the privilege of meeting 

with Mr. Sanusi, the Governor of the Central Bank of Nigeria, 

whom I’m delighted to see here today. 

Our working lunch meeting with the Governor followed an overnight flight to Nigeria and no rest at all before engaging in an aggressive meeting scheduled that day. Jet lagged and tired meant 

that we were struggling to stay focused in some of our meetings. 

But as soon as the Central Bank Governor began to speak, every 

single person in attendance caught a second wind. We got pumped 

up, as they say. 

Our working lunch went well over the allotted time as we discussed and debated the impact of the financial crisis in Nigeria, the 

tough decisions he and his colleagues had to make as they evaluated the health of the nation’s leading banks, and the political and 

economic pitfalls of bailing out failing financial institutions, as well 

as the initiatives to establish a so-called ‘‘bad bank’’ to acquire the 

toxic assets from these banks’ balance sheets to get the banks lending again. 

It was also fascinating to hear how Nigeria held the leaders of 

the failing banks accountable in a way that many Americans wish 

had also been done here for the leaders of financial institutions 

that benefited from the taxpayer-funded bailouts. 

Governor Sanusi also engaged members in a great discussion 

about the need to reform the entire financial sector in Nigeria, 

which he will address in his testimony today. 

But one point in particular strikes me as something we struggled 

with here, also. Creating differentiated banking licenses allows specialized banks to emerge serving critical parts of the market with 

targeted products and services. Yet each such institution must be 

subject to appropriate oversight and strong regulatory framework 

so as to not trigger regulatory shopping or regulatory rates at the 

bottom as we arguably witnessed in this country. Increased capital 

requirements and more stringent risk management structures for 

the most systemically significant institutions will help Nigeria and 

Africa, as a whole, mitigate systemic risk going forward. 

Lastly, improved regulation of capital markets to promote transparency will be critical to attract the necessary capital to finance 

Nigeria’s exceptional growth potential and private-sector development needs. 

In many ways, the discussion we had in the hotel conference 

room in Nigeria reflects the debates we are having here in the 

3 

United States as we consider necessary reforms to our own financial sector. 

Following the meeting, all members in attendance agreed that 

we had to invite the Governor and his colleague, Ms. Oteh, as well 

as the incredibly knowledgeable Mr. Moss from the Center for 

Global Development to testify before Congress and to tell Nigeria 

and Africa’s story. Hearing this and listening to our witnesses 

today will better inform our support for assistance and reforms in 

emerging markets. 

In closing, I would like to point out that much of the work that 

we have done here in this subcommittee to push the international 

institutions seems to have yielded results, as Africa seems to have 

endured fairly well through the crises and may be on track to resume on the positive growth path it was on prior to the financial 

crisis. 

So, with that, I would like to once again thank our distinguished 

witnesses for making the long journey across the Atlantic to appear 

before this committee today, and I look forward to having a spirited 

and informative discussion. Thank you for your participation here 

today. 

I now turn over for an opening statement to my friend and colleague, Mr. Miller. 

Mr. MILLER OF CALIFORNIA. I want to thank my friend, Chairman Meeks, for convening this hearing on reforms under way in 

Nigeria’s financial system. And I say ‘‘my friend’’ because it is true. 

He is my friend. Politics should never be personal. In our case, it 

never has been; and it never will be. He is my friend, and I believe 

I’m his friend. 

Financial crisis has hit all nations. Many nations like Nigeria 

were victims of the follow-on effects of a recession as capital that 

once flowed to Nigerian institutions quickly left the country. This 

withdrawal harmed businesses and individuals in the country and 

exposed some remaining flaws in the financial services sector. 

Fortunately, there are individuals who have worked to right the 

system, bring stability to the country, and provide the foundation 

for prosperous economic growth going forward. I want to thank 

them for their efforts they have done, and I look forward to working with them in the future and hearing your insight. 

I’m looking forward to the witnesses today, and I’m not going to 

waste any more of our time. Thank you. I yield back the balance 

of my time. 

Chairman MEEKS. I know that Governor Sanusi has given us 

previously a written statement, but he has also asked to have submitted for the record an appendix to his submission, and I ask that 

it so be submitted in the record without objection. 

We want to jump right into it. We really—for an individual 

whom I think for this subcommittee needs no more introduction 

than we talked, we were so impressed with him and what he has 

done as the Governor of the bank in Nigeria, and I would ask him 

to start off with an opening statement, and then we will go to Ms. 

Oteh. But for purposes of trying to save some time, we will go right 

to Governor Sanusi. 

4 

STATEMENT OF LAMIDO SANUSI, GOVERNOR, CENTRAL BANK 

OF NIGERIA 

Mr. SANUSI. Thank you very much, Chairman Meeks and Ranking Member Miller. I would like to thank this committee for being 

kind enough to invite us to testify. It is an honor for us as representatives of the Nigerian Government to come and speak to the 

U.S. Congress on what has been happening in Nigeria. 

Chairman Meeks has, of course, referred to the meeting we held 

in February 2010. A lot has happened since then; and I would like 

to, for purposes of completeness, simply briefly go over the impact 

of the crisis on Nigeria and the steps we have had to take as regulators. I will try to avoid saying much about the capital market, because Ms. Oteh will handle the capital market side of the reforms. 

As mentioned, the Nigerian economy was affected by the second 

round of impact of the global financial crisis. The Nigerian financial markets were not fully integrated into the world economic system, but certainly we have an economy that is very much dependent on volatility of oil, government revenues, and exchange rates. 

The level of foreign reserves was intricately tied to the price and 

volume of oil. 

In 2007, as the committee will recall, oil price ranged up as high as $145 to $147 a barrel, and Nigeria was pumping more than 2 

million barrels a day. This led to an increase in government revenues and building up of an excess crude reserve, but it also created 

a lot of liquidity that could not find its way into the real economy 

and went instead into nonpriority areas, particularly the capital 

markets. The result was that the Nigerian Stock Exchange grew by 

more than 5 times, which in 2004 and 2007, the banking sector 

alone had its value multiplied by over 900 percent in 3 years. 

A lot of that was driven by margin lending. It was also driven 

by a lot of proprietary position hidden in MOF loans, and there was 

a lot of share price manipulation and fraud by bank executives who 

set up SPVs to trade on the Stock Exchange. 

When the price of oil crashed—and in Nigeria, you will recall we 

then had the Niger Delta crisis, so we had a double whammy, a 

collapse in price and a collapse in output—the liquidity was taken 

out of the system, and the stock market crashed. This was after the 

collapse of Lehman Brothers, and that exposed inherent weaknesses in the Nigerian banking system. 

It soon became clear that a number of banks had deep and serious liquidity problems that were structural in nature. The Central 

Bank reacted like all other central banks with quantitative easing, 

reducing cash reserve requirements, reducing liquidity ratio requirements, and opening up an expanded discount window, but 

none of that addressed the problem. 

As I said, I became Governor in June 2009, and it was clear that 

we had to look much deeper at the root of the problems. We sent 

in examiners; and, as I briefed the committee, we discovered a 

number of things. 

First of all, we discovered that there were huge concentrations by 

the banks in the capital market and to all marketing. We also discovered serious governance issues and had to try a number of chief 

executives. As of October of this year, we have been able to secure 

the conviction of one of the chief executives and to recover assets 

5 

taken from the bank worth about $1.2 billion. These assets were 

real estate assets in the United States, in South Africa, in Dubai, 

and in Nigeria. 

We have set up an asset management corporation. We—the 

board has been approved. The AMCON has already announced it 

is going to purchase 2.2 trillion naira worth of bad loans from the 

banks, and that will clean up the banking system. We have received a lot of support from the IMF, the World Bank, IFC, Ex-Im, 

the European Investment Bank, and ADB, as documented in the 

paper and appendix. 

We have had to review the universal banking model and create 

and insist that banks restrict themselves to banking business. The 

details of that should come into testimony on exactly how it is 

going to work. 

We have different levels of authorization for the banks, as rightly 

mentioned—international, national, and regional. We do have specialized banks for mortgages, development, financial institutions, 

noninterest banks; and this is all in there for healthy development 

of the Nigerian financial system. 

Finally, as we are running out of time, at the heart of the problem with financial crisis is the lack of integration of the financial 

economy with the real economy; and we have focused on making 

sure that banks actually lend to the real sector, as opposed to lending for capital markets and speculation. And with AMCON, clearly, 

as indicated in our appendix, we have gotten the banks to agree 

to put aside 30 basis points on their balance sheets for 2011 for 10 

years. So the banks are, in essence, going to pay the cost of the 

bailout, and there will be no addition to the fiscal deficit, and that 

is going through legislation in Nigeria at this moment. 

This I think highlights the key features of the intervention of the 

Central Bank, and there are others that will be taken by Ms. Oteh, 

and hopefully in discussions we will go into detail. Thank you very 

much. 

[The prepared statement of Governor Sanusi can be found on 

page 40 of the appendix.] 

Chairman MEEKS. Thank you. Thank you for your testimony. 

Now, we have Ms. Oteh, who is the Director General for the Securities and Exchange Commission of Nigeria. Welcome. 

STATEMENT OF ARUNMA OTEH, DIRECTOR-GENERAL, 

SECURITIES & EXCHANGE COMMISSION OF NIGERIA 

Ms. OTEH. Thank you, Chairman Meeks, and other members of 

the subcommittee for the invitation to join Governor Sanusi and 

Mr. Moss to testify at this hearing on the global financial crisis and 

the financial reforms of Nigeria. 

I will focus my testimony primarily on the impact of the global 

financial crisis on the Nigerian capital markets and the reform 

agenda that we at the Securities & Exchange Commission in Nigeria have embarked upon since I assumed duty on the 7th of January of this year. 

This testimony is both timely and relevant to the challenges that 

we face in Nigeria, that you face in the United States, and that the 

rest of the world faces. It is auspicious also as we seek, as the Nigerian Securities and Exchange Commission, to seek to strengthen 

6 

our partnership with the U.S. Securities and Exchange Commission. We believe a strong partnership with the U.S. SEC is critical 

to building a world-class capital market and that it is mutually 

beneficial in the fight against financial crime, which knows no borders, and in our common objective of maintaining capital markets 

that are of the highest integrity. 

We do believe that for our country, Nigeria, despite its enormous 

wealth, that whether in terms of natural resources or in terms of 

human resources that we are yet to truly realize our potential as 

a country. We believe that world-class capital markets will clearly 

enable us to do so for a number of reasons. Because world-class 

capital markets foster a meritocracy, they foster good corporate 

governance, they encourage innovation and entrepreneurship, 

which in our view will create job opportunities that will harness 

the skills and entrepreneurial zeal of the many hardworking Nigerians that Nigeria has been blessed with. 

As the ethics regulator of the Nigerian capital markets, whose 

mandate it is to regulate and develop these markets, the goal of 

our reform agenda of the SEC is to build a world-class market that 

will enable Nigeria to diversify its economy, finance its huge infrastructure needs, and enhance its business climate and environment. 

What we consider a world-class capital market is one that always 

engenders investor confidence, that has the breadth and depth in 

terms of product offerings and is characterized by market integrity, 

and also has a strong regulatory framework and a strong and 

transparent disclosure and accountability regime. We believe that 

it is also one that is fair, it is robust and has an efficient marketplace. 

While the global financial crisis has been devastating, we believe 

that it has created an opportunity for us to refocus on building a 

world-class capital market and to leverage the lessons that we 

learn from our own experience as well as the lessons that other jurisdictions have had. 

The testimony that we have submitted outlines the impact of a 

crisis on Nigeria in general and then outlines the key elements of 

the reform agenda that we have embarked on. It also encourages 

and asks you to continue to support the relationship that your 

country, the United States, has with our country and to continue 

to encourage the multilateral agencies to support us in our endeavors. 

As Governor Sanusi mentioned, the global financial crisis was 

very multifaceted. It led to a dwindling of government revenues. It 

also led to a weakening of our currency. It exposed the weaknesses 

both in the banking sector and fueled in our mind an unprecedented stock market crash, undermining confidence in the financial 

sector. We believe that the effect of a crisis would have been worse 

had it not been some of the progress that our country has made 

with respect to a sound macroeconomic management, notably since 

2003 when we set up the fiscal oil rule, when we embarked on a 

number of reforms including a very elaborate pension reform which 

enabled us so far to build up more than $10 billion in pension assets that are managed on a defined contribution basis. 

7 

We believe that despite the fact that there was excessive risktaking in our markets, despite the fact that both retail and institution investors did have huge losses, we feel that some of the measures that we have put in place today are clearly able to prepare 

our markets for what it should be. We feel that it is important to 

continue to show that our markets, whether it be the banking sector or whether it be the capital markets, that we will not tolerate 

anything that is improper. So, like the Governor of the Central 

Bank, my colleagues and I have been taking enforcement action 

that we consider has been unprecedented in the history of our stock 

markets; and I will mention a few of them. 

As a fallout from the crisis in the banking sector, we had a joint 

investigation between ourselves and the Central Bank which led us 

to identify a number of market abuses that happened in bank reform. As a result of those findings, we have taken 260 individuals 

and entities to our investments and securities tribunal. We are expecting that illegally gained profits will be dislodged and that, 

where possible, that investors will be restituted. We have also 

taken steps to strengthen the Nigerian Stock Exchange so that it 

can continue to play the role that it should play as the visible symbol of our stock markets. 

I will focus—I look forward to you reading the rest of my submission. But I do want to, through you, thank the U.S. Securities and 

Exchange Commission for the relationship that we have built in 

such a short time. 

One of the things that we were fortunate to have happen is to 

have a team from the U.S. SEC come and visit us very early in my 

tenure to evaluate and peer review our capital markets. Through 

the work that they have done and the recommendations that they 

have made, we are able to support some of our own work and our 

views on how we can build a truly world-class capital market. We 

are also leveraging our relationship with other international securities commissions and indeed have been a member of the International Organization of Securities Commissions for several years. 

I was recently elected as the Chairperson of the African Middle 

East Regional Committee of IOSCO, and we are proud to note that 

we are signatory ‘‘A’’ of the IOSCO memorandum of understanding. 

Like the Central Bank Governor said, we have also received 

great support from all the multilateral agencies; and indeed in 

building our fixed income market we have a resident adviser who 

was sponsored by the World Bank. 

I hope that my submission has contributed to an understanding 

of the impact of the impact of the global financial crisis on the Nigerian capital market. As I have indicated, while the impact of the 

financial crisis has been devastating, the silver lining is the opportunity that it gives us to build a world-class market, as this is critical to Nigeria’s economic and social progress. 

Once again, I wish to sincerely thank this honorable body for the 

opportunity to give this testimonial and I look forward to your continued support. Thank you. 

[The prepared statement of Director-General Oteh can be found 

on page 27 of the appendix.] 

Chairman MEEKS. Thank you so very much for your testimony. 

8 

Now, we are delighted to have with us Mr. Moss, who is a Vice 

President and Senior Fellow at the Center for Global Development. 

Thank you for being here. 

STATEMENT OF TODD J. MOSS, VICE PRESIDENT AND SENIOR 

FELLOW, CENTER FOR GLOBAL DEVELOPMENT 

Mr. MOSS. Thank you Chairman Meeks, Ranking Member Miller, 

and members of the subcommittee. I appreciate the opportunity to 

appear before you today to discuss the effects of the global financial 

crisis on Africa and U.S. interests in Nigeria’s future. 

In 2009, much of Africa saw a sharp slowdown in private capital 

inflows, and the region’s growth rate fell by more than half. But 

this decline was mitigated and the outlook today for Africa is much 

brighter in large part due to the aggressive response of the multilateral development banks which accelerated lending to compensate for this drop-off in private capital. For this reason, my first 

point today for the subcommittee is that the multilaterals are critical to the recovery of the global economy and worthy of robust U.S. 

support. 

I would urge Congress to look favorably upon the soft loan window replenishments and the general capital increases for the African Development Bank and the World Bank in particular. These 

are investments that leverage U.S. contributions, build global markets, and help to expand the circle of prosperity. 

Now, turning to Nigeria specifically, I want to make just three 

points. 

The first point is that the global economic crisis may turn out to 

be a good thing for Nigeria. That country’s banking troubles are 

largely local in nature, but the pressure of the crisis exposed the 

hidden problems and forced the actions of the Nigerian authorities. 

In the long run, I believe this will make Nigeria’s financial sector 

stronger and more competitive. 

It is worth noting that real change was not a foregone conclusion. 

The actions of Governor Sanusi have been decisive, credible, and 

transparent. 

My second point is that, even while the steps so far have been 

meaningful, Nigeria’s reforms are still incomplete. The Central 

Bank must contain the final cost of the bailout, sell off the seized 

banks in a fair and transparent manner, and enforce rules to prevent a repeat crisis. 

Yet the future of Nigeria’s banking sector goes well beyond monetary policy. Reforming the oil and gas sector is critical to nurturing 

the domestic capital markets by allowing local banks to finally participate in joint investments that are—much of which are currently 

financed through the budget. 

The fiscal situation is also urgent. Savings in the excess crude 

account stood at $20 billion just 20 short months ago, and now are 

almost completely depleted. For this reason, Nigeria’s outlook was 

downgraded by the credit rating agencies last month. 

Success in banking ultimately depends in Nigeria on other steps 

to make the real sectors of Nigeria’s economy more competitive. A 

broken electricity system must be fixed. The fight against corruption, which had been so promising a few short years ago, has 

waned badly over the last 3 years. This fight must be renewed. And 

9 

of course, and perhaps most importantly, Nigeria needs a credible 

election in the spring. This is essential if the country is going to 

restore confidence and get back on track. 

And this leads to my final point, which is that Nigeria’s success 

is undeniably in the U.S. national interest. The United States 

needs a strong, capable, and stable Nigeria. Nigeria is the key to 

regional security. It is the neighborhood enforcer in places like Liberia and other hot spots of interest to the United States. Nigeria 

is vital to U.S. energy security. It is not only the 5th largest source 

of U.S. oil imports, but instability in the Niger Delta can spike 

international oil prices, and this affects the wallet of every American. 

Nigeria is also the linchpin in our fight against the 21st Century 

transnational threats such as terrorism, disease, and arms trafficking. A weak Nigeria is a source of these dangers. A strong Nigeria can be an indispensable ally to contain these threats. 

Last Christmas was a stark reminder of the risks of a weakened 

Nigeria. The would-be bomber on Northwest Airlines Flight 253 

was Nigerian. Yet during that emergency there was no partner for 

the United States on the other end of the line. The United States 

was under terrorist attack and President Yar’Adua was literally 

missing in action, leaving a power vacuum that was dangerous for 

Nigeria and dangerous for the United States. 

Now counterterrorism may seem disconnected from the financial 

sector issues that we are discussing today, but it is in fact closely 

linked to the capacity and credibility of the Nigerian Government. 

Banking is the vanguard of Nigeria’s economy. Fixing the financial 

sector is a prerequisite if the country is going to modernize and join 

the international community as a responsible and dependable partner. 

Let me end my testimony with a quick pitch for a new idea, and 

this is one where Nigeria may be able to learn something from our 

own experience here in America. In the 1980’s, the State of Alaska 

began paying dividends from earnings on oil savings directly to 

State residents. It did this as a deliberate way to check the power 

and wasteful spending of government. 

New technology like iris scanning and mobile banking now make 

it feasible and affordable for any government to make direct payments to their citizens. Cash transfers are now being used in Mexico, Brazil, South Africa, Bolivia, Mongolia, and elsewhere. They 

may be useful in the Niger Delta, too, where billions of dollars have 

been spent with few tangible benefits on the ground. This waste 

and corruption is one cause of the Delta violence today. The Government of Nigeria has an opportunity with some political courage 

and a little creativity to finally break that vicious cycle. 

Thank you. 

[The prepared statement of Mr. Moss can be found on page 25 

of the appendix.] 

Chairman MEEKS. Thank you so very much for your testimony. 

I thought I saw my colleague earlier from Ohio. Steve Driehaus 

was here, and I was going to allow him to say a few words, but 

if he should come back, we will do that then. 

I guess we will just open it up to questions and have a little giveand-take back and forth, and I will start with Governor Sanusi by 

10 

asking, could you please tell us more about the stress tests that 

you conducted on your banks and what support, if any, that you 

got from the IMF and the policy and the regulatory implications of 

the findings that you received from the stress tests that you implemented? 

Mr. SANUSI. Thank you, Mr. Chairman. 

When we were going to embark on the audits, it was very clear 

to us that there was a problem in the industry, but the problem 

was not evenly distributed. Some banks clearly had liquidity problems that were coming to the discount window. Other banks had 

a lot of money sitting in the Central Bank. So the interbank markets had collapsed. We had big banks that had a lot of money and 

a lot of capital but who didn’t trust the other banks enough to 

place money with them. The money was in the Central Bank earning 1 percent. 

Now to make sure that as the result of examinations we identified the banks that posed the systemic risk, we worked with IMF 

based on bank balance sheets. What we did was to give them the 

24 Nigerian banks without giving them the names of the banks 

and their financial statements, and they ran a blind stress test. 

And five banks came out as banks that were at risk in terms of 

poor asset quality, poor liquidity, and probably bubble capital. 

Now those five banks were exactly the five banks that were permanently at the expanded discount window. So there was already 

a process of self-selection. So when we sent in examiners to the 

first set of 10 banks, we made sure that those 5 banks were included; and the findings were consistent with what we expected. If 

anything, they were much worse. Because, clearly, the problem was 

much deeper than we thought it was for a number of reasons. 

First of all, the asset quality problem was much more severe 

than we had thought, the level of exposure to capital market was 

much higher than the banks had previously disclosed, and what 

was sad was that a number of issues we then discovered were not 

just about asset quality or concentration but fraud. 

In the case of the CEO who was recently convicted, $1.2 billion, 

that is the value of total depositors’ funds taken through special 

purpose vehicles and basically used to purchase property in different parts of the world. On the books of the banks, they were 

loans, but it was actually money that was taken out of the banks. 

And we were able to trace the property in Dubai, some property 

here in Maryland, some property in South Africa, some property in 

Nigeria and get—of that property. But the IMF was extremely useful in helping us identify what were the most likely areas to look 

at first, and that helped us deal with the problem very quickly. 

Chairman MEEKS. Let me ask this question. We have also made 

stress tests mandatory in our regulatory reform framework, especially Central-Bank-driven stress tests for the larger banks. And 

what we have also decided to do was to make the results of the test 

public, that it be mandatory so that we could give information or 

better inform the markets of the risks that they bear. Do you have 

any thoughts or any idea of implementing something similar in regards to implementing this in Nigeria? 

Mr. SANUSI. Yes. In fact, a few weeks ago, we had the IMF Financial Market Division come to Nigeria to do training on the 

11 

stress testing for the Nigerian Central Bank officials and for Nigerian banks. We do hope as soon as the banks go through their 

mergers and acquisition to give them guidance on stress tests. This 

will be run on their December balance sheets and their March balance sheets. What we would like to do is, after the M&A do a 

stress test, then invite the bank to raise more capital and do a second stress test after 6 months to make sure that all the banks have 

been adequately capitalized. 

But I should add that in the case of American banks, there are 

other things that need to be done beyond stress testing, including 

looking at the root cause of some of those issues. A stress test, for 

instance, will not solve the problem of a rating agency that gives 

an investment grade rating to a bad loan. A stress test will not 

solve the problem of an investment bank that influences those ratings. So there are serious governance issues that need to be addressed. 

We have tried to address both the governance issues and the capital adequacy issues, and perhaps we are trying to avoid the mistake of thinking that capital alone will solve the problem. It is 

human beings, and of course we have to look at human beings who 

played a role in this crisis. 

Chairman MEEKS. Thank you. 

Let me squeeze in a question to Ms. Oteh before I turn it over 

to Mr. Miller. 

I have had a number of individuals recently who have just come 

back from Nigeria actually, and they said that the first time—these 

are individuals—some are on Wall Street, some are friends—that 

they are looking at investing in Africa, and in Nigeria in particular, 

and they said they have been looking at it for a long time, but they 

now see that there is potential on the continent. But some are 

starting to look and feel there is also may be a speculative bubble. 

And I was wondering if you had any thoughts on whether Africa 

may in fact be experiencing somewhat of a foreign direct investment bubble and what systems you have in place to monitor and/ 

or to react to the same. 

Ms. OTEH. Thank you, Mr. Chairman, for the issues that you 

raised. 

Our view is that this is really the ‘‘Decade of Africa’’ in the sense 

that over the last 20 years, across Africa, there have been first-generation reforms as well as second-generation reforms and some of 

what we are seeing are the dividends of those reforms. In Nigeria 

specifically, they are huge investment requirements. And I don’t 

believe that the level of FDI is sufficient to either take advantage 

of the investment opportunities that we see across several sectors, 

whether it be in sectors—in infrastructure. 

You yourself had mentioned and Mr. Moss also mentioned some 

of the challenges that we face in the power sector. There are clearly 

opportunities both for private-sector investment and for additional 

aid going to other infrastructure. 

There are opportunities in the consumer goods sector that come 

for Nigeria from the size of its population. As you know, Nigeria’s 

population is estimated to be about 150 million people. 

Some of the examples of what has happened in the telecom sector and how the telecom sector has evolved in Nigeria and other 

12 

African countries show or give credence to the advantage—fast 

mover advantage which is those who are looking seriously at Africa, to Nigeria in particular, are able to observe. Thank you. 

Chairman MEEKS. Mr. Miller. 

Mr. MILLER OF CALIFORNIA. The economic peak of your economy 

was driven by oil revenue. How dependent is Nigerian oil revenue 

today and has the economy developed other sources of revenue 

since the drop in oil prices? 

Anyone can answer that. 

Mr. SANUSI. Thank you very much. 

It certainly is a big problem. Because if you take Nigerian GDP, 

42 of gross domestic product is agriculture, but the bulk of agriculture is primary production, and we have not taken full advantage of agricultural policies or built a value chain and move us 

from primary production into processing, which is really what you 

need to do, move from primary production to processing to manufacturing. And I will give you a few examples. 

Nigeria is the world’s leading produce of cassava, but we don’t 

produce any starch or ethanol. The leather products in northern 

Nigeria, the leather is called Moroccan leather, but Nigerian 

tanneries produce what is called wet blue, which is the basic level 

of processing that gives them profits of 2 cents per square foot. 

Whereas from Morocco, from the same leather base, companies are 

producing leather used by companies like Goodyear and Yves St. 

Laurent. 

We have crude oil. Our refineries are not working. So the real 

challenge of the economy is to fill those gaps and those 

externalities and economic policies geared towards that. 

Now building agricultural productivity and moving up the value 

chain and also fixing the issues of power and infrastructure are 

critical to building manufacturing base. Only 4 percent of GDP is 

manufacturing. And this basically ties again to Chairman Meeks’ 

question. The potential for the Nigerian economy is so great, however, they have to be harnessed with the right economic policies. 

We don’t have enough foreign direct investment coming in. 

But, historically, we have learned a lesson. We had huge inflows 

coming into the capital market, hot money. So there is a bubble. 

And I think what we want to do is make sure that we attract the 

right investment, turn investment into power, investment into infrastructure, into manufacturing, into agriculture, as opposed to investment into speculative asset price bubbles. 

Mr. MILLER OF CALIFORNIA. Are you seeing capital inflow starting to increase recently? And if that is occurring, you have talked 

about reforming your financial sector and your banks. Are they allocating capital in the more transparent merit-based fashion they 

were before? 

Mr. SANUSI. Yes. We are, for instance, as regulators having a 

closer look on the type of inflows that are coming in. We have seen 

plans by, for instance, power companies to come in and set up a 

power plant; and that is the kind of investment that we didn’t have 

2 or 3 years ago. 

But, obviously, we didn’t have those investments because the reforms of the power sector themselves had not taken place. So what 

we are pushing at Central Bank and as regulators is to get the 

13 

right economic policies that will attract the right type of investment. Otherwise, we continue attracting hedge funds that just buy 

shares. 

Now, clearly, we have seen also investment in the capital market. Nigerian companies are really trading, many banks are trading at below book value. So there is a bargain in there. So many 

people actually see, with the resolution with the asset management 

corporation, with the mergers and acquisition, people see a big upside in buying bank shares now; and, therefore, we have seen some 

inflows in that area over the last few weeks. But we would like to 

see more money go into infrastructure, into power, into manufacturing; and that is really where the growth will come. 

Mr. MILLER OF CALIFORNIA. It seems like foreign investments on 

your equity markets have been very volatile, especially recently. 

How do you plan to mitigate the impact of that in the future and 

stabilize it in some fashion? We have had the conversations about 

questionable graft or corruption that might be occurring that sends 

a perception that things are not stable enough to create investment 

that is worthwhile. 

Mr. SANUSI. Well, a number of things. First of all, we have to 

continue working on improving the transparency of the system; and 

I think once people understand that markets are transparent and 

disclosure is good and we are fighting corruption, they are going to 

have more confidence in the system. 

A lot of the volatility we saw in 2008 was out of recognition that 

perhaps people were not getting the true story. And I think what 

we have done both at the Central Bank and at SEC is to tell investors that this is the problem, we have disclosed the problem very 

openly and transparently; and we are dealing with it in a very effective manner. The fact that some of the most powerful bankers 

and powerful stockbrokers are actually being put in jail lets investors know that there is a lot of political support for this process and 

that the country as a whole is determined to clean it up, and I 

think this is the first and most important element. 

The second element, of course, is to broaden and deepen the markets themselves, because that is extremely important. There is a 

limit to how much money can come in to the capital markets. A 

bubble gets created, and then people start selling, and you have a 

bust. But if we actually opened up those areas that are in need of 

investment and fantastic returns are made—we produce 3,000, 

4,000 megawatts of power, and that is for a country of 150 million 

people. Now that is about what Ethiopia will produce in 2012. So 

just imagine the potential for the power. It is bigger than the 

telecoms. If you look at what MTN has done, what AT Satellite has 

done in Nigeria with telecommunications, power is potentially bigger than that. 

And the capital market that we have does not list the bulk of the 

economy. All companies are not listed. The telecom companies are 

not listed. Many of the large manufacturers are not listed and not 

the SMEs. So broadening and deepening the capital market and 

continuing economic reforms are, in my view, the way to attract investment on an ongoing basis. 

Mr. MILLER OF CALIFORNIA. Mr. Moss, do you have a comment 

on that? 

14 

Mr. MOSS. I think that even if you had an ideal financial sector— 

and I think the other witnesses today have taken tremendous steps 

to try to right Nigeria’s financial sector; it is wonderful to have an 

efficient financial sector—but you can only go so far with the financial sector if the real sector behind it isn’t competitive. So until the 

oil sector reforms are implemented and implemented well, we are 

not going to really see the banking sector be able to take off in the 

way that it could. 

Similarly, with infrastructure, it would be great—the demand for 

power in Nigeria is tremendous. This should be a huge opportunity 

for domestic and foreign power companies to come in. Nigeria is 

still flaring a lot of its natural gas. There is no reason that couldn’t 

be turned into power. 

But the environment is still so difficult. There is no way, given 

the uncertainties with tariff structure, and uncertainties with contract enforcement, that you would put billions of dollars into the 

power sector right now until you had some more clarity on what 

else was going, what else was going to happen. So, in a sense, I’m 

extremely—I have been watching from the outside extremely impressed with the steps the financial sector has taken, but there is 

only so far you can go with those reforms until the rest of the economy has to catch up. 

Mr. MILLER OF CALIFORNIA. Thank you. 

Chairman MEEKS. I saw Mr. Sanusi get very antsy, wanting to 

reply. 

Mr. SANUSI. Yes. I want to thank Mr. Moss. I want to give an 

update on what is happening with the power sector. 

The government has actually started the process of reviewing the 

tariffs. We have a new regulatory body in place. We are working 

with the World Bank, and the Minister of Finance is going to obtain partial risk guarantees for that sector, and therefore the reforms that were halted 3 years ago are actually on course. 

We believe the only reason that stopped people from investing at 

this moment is the other issue mentioned, the uncertainty over the 

elections. But in terms of the reforms themselves, all the right 

things have been done by President Jonathan; and we do think we 

are going to get a lot of progress in that very shortly. 

Chairman MEEKS. Mr. Moss, let me ask you a quick question 

about your thoughts on how the ‘‘bad bank’’ model has been most 

effectively applied in the past crises. And I was going to ask this 

question to Mr. Sanusi, also, but let me start with you. What do 

you think Nigeria needs to do to get right to ensure that there is 

success in Nigeria, also? 

Mr. MOSS. I’m not going to be so bold as to make banking regulatory advice with Governor Sanusi at the same table. I’m not a 

banking regulator. 

What I would say, though, is that the most important aspect 

from the outside if you are an investor considering putting money 

into the Nigerian financial sector is the credibility and transparency of the system. You know there were rumblings even before 

the crisis about lots of—we should call it what it is—collusion between the banks to lend to each other. Even the push to try to harmonize financial reporting years was resisted, and the assumption 

from the financial community in London and New York was that 

15 

is because there is at lot of lending going on between the banks to 

kind of boost the balance sheet just before the reporting period. 

So that is just one example where the credibility of the system 

has been broken and broken quite badly. 

So the greater transparency that the Central Bank and others 

can bring back to the system, then that will help rebuild confidence 

in the financial community in Nigeria. 

Chairman MEEKS. Governor? 

Mr. SANUSI. Thank you very much. 

Two things on transparency. As we have said in our presentation, we have forced the banks to adopt a common year end. All 

banks now publish December 31st. We have pushed for IFRS, and 

that will start from 2012. We have also pushed through certain 

governance changes, change in auditors. Auditors have to be 

changed after a maximum of 10 years, and nonexecutive directors 

have to leave the board after 12 years, and CEOs cannot be there 

more than 10 years. So we have actually put in through changes 

that end up improving transparency. 

On the specific question of the ‘‘bad bank,’’ last year we studied 

the experiences of different countries, including the United States 

Resolution Trust Company, the Japanese experience with—Island, 

and the Asian financial crisis. And what we did with our own asset 

management corporation was to take two companies that are doing 

two different things in Malaysia, the Danaharta and the 

Danamodal, and put them in as one. 

So we have an asset management corporation that is unique in 

the sense that none has been done like that before anywhere. It 

does two things. On the one hand, it purchases nonperforming 

loans, but, on the other hand, it also is a recapitalization vehicle, 

a resolution vehicle in every sense of the word. 

The first stage is to purchase the nonperforming loans. But in 

the event that banks require capital after the purchase of the loan, 

then the asset management corporation can actually inject capital 

into the banks and then take them from there into a merger and 

acquisition situation. So AMCON is critical to resolving the problems of these eight to ten undercapitalized banks. 

We studied the Malaysian model. We talked to the Governor 

who, as Deputy Governor, was part of the process of setting up the 

two different companies. But because of the legislative process, 

what we did was, rather than to go for two different bills, went for 

one bill that gave us one company that would do all of this. 

We believe that AMCON will be a major part, and it will lead 

to—I think it would be—it is critical. Right now, we have about six 

banks that have reached advanced stages of discussion with merger 

partners. AMCON has already disclosed the basis of valuation, that 

transparency. It discloses that to lock up those assets for at least 

2 years before selling. That is, again, transparency. And when 

AMCON is going to sell shares it will announce that it will sell and 

the terms and conditions of the sale the month it will be sold. So 

there is a process there that makes sure that we have a transparent and credible process all through. 

And on the board of AMCON we have the Director General of the 

SEC, we have the MD of NDIC, we have the Deputy Governor of 

16 

Central Bank, the government Minister of Finance, nonexecutive 

director. So it is really a well-regulated institution. 

Chairman MEEKS. I’m about to close, but I don’t get this opportunity to have distinguished individuals come testify before the 

committee from all the way from across the Atlantic Ocean. 

But my final question is this, and this is a question that we always have. We have had recently here in the United States—it is 

an issue that comes up—and that is the tension that arises between consumer protection and safety and soundness of the institutions and whether or not a Central Bank can do both at the same 

time. 

And then I think in the special context with—in context with Nigeria, because of literacy rates being low and dealing with micro 

finance banks, I was wondering whether or not there was anything 

or any provisions being put in place so that you could protect the 

most vulnerable clients from any kind of bank fraud and/or abuse? 

Mr. SANUSI. Part of what is happening, the reforms, obviously, 

that we have looked at Central Bank itself and the weaknesses in 

the governance structures in the Central Bank and as is contained 

in my testimony we have set up a special risk management department in the Central Bank. We have also set up a special consumer 

protection department that is working with the banks to make sure 

that every bank sets up a consumer protection unit, and we take 

complaints. 

We are also working on reforming—on reviewing the Consumer 

Protections Act. Because a major problem, as rightfully mentioned, 

was consumers not knowing their rights and being taken advantage of by the financial institutions. 

Now should it be done by the Central Bank and is that a Central 

Banking role? In most developing countries you find that the resources for doing these things are within the Central Bank, and we 

are best positioned to tie it to our regulatory and supervisory role 

and call the banks to order in the event of exploitative practices. 

So we have put in place structures. We still have a long way to 

go. We haven’t gone as far on the consumer protection and micro 

financial end as we have, for instance, on the financial stability 

end. But, obviously, we have been dealing first with the crisis and 

trying to bring us back from the brink of catastrophe; and then 

these are the building blocks for making sure there is no recurrence. 

Chairman MEEKS. Mr. Miller, anything else? 

Mr. MILLER OF CALIFORNIA. Without a doubt, Nigeria has regional influence, and I hope the reforms in your financial sector 

will have a benefit to your neighboring countries and Africa as a 

whole. I applaud you for your reforms. I ask you that you keep 

them up, and your efforts really will benefit your surrounding nations. I thank you for your testimony. 

Chairman MEEKS. Let me also thank you for your testimony. Because, as indicated I think by Mr. Moss, the United States needs 

a strong Nigeria. In fact, all of west Africa needs a strong Nigeria. 

Because as Nigeria goes, so go many of your neighbors. 

And I just was delighted by the interest that I had in some 

American investors now looking at Nigeria. Whereas just 6, 7 years 

ago, that would have been unthinkable. And it is just amazing. I 

17 

had people calling me up saying, ‘‘Hey, I just was over in Abuja 

and I’m thinking about putting money in there. What do you 

know?’’ 

And I happened to have told them we are having you here to testify, and I will tell them after our hearing was over, and I’m going 

back, as I did after we met in Nigeria, that reform is very much 

on the way and it is a place where we can look at investment and 

can really make a difference in having a sound partner in Nigeria 

and moving forward. 

So let me again thank you for your testimony. Some members I 

know that we wanted to be here are not here, so they may submit 

questions or have additional questions for this panel. Therefore, 

without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. 

That being the case, I now adjourn this hearing. 

[Whereupon, at 4:00 p.m., the hearing was adjourned.] 

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A P P E N D I X 

November 16, 2010 

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