Reflections on the Global Financial Crisis: Lessons for Regulatory Reforms and Regional Integration in ECOWAS

Abstract

The global financial crisis so far has taught stakeholders some lessons. One lesson is that it has provided substantial evidence in favour of the view that ‘self-regulation’ or the ‘invisible hand’ cannot be relied upon to ensure financial stability. In view of this, the task of appropriately reforming the national and regional financial regulatory architecture of ECOWAS member states is paramount. By first identifying the regulatory lapses that were exposed by the crisis, the paper offers several remedial options in this direction. The major remedial devices being the broadening of the spectrum of regulation to accommodate all instruments and segments of the financial system, the alignment of the compensation of financial executives with their long term performance, the breaking up of too-big-to-fail (TBTF) financial institutions among others. The paper recognises the central bank as the first line of defence in times of crisis and clarifies some of the conflicting roles of the central bank during financial crisis. Along these lines, particular emphasis is given to the role of the central bank as a macroprudential regulator, its dilemma between maintaining price and financial stability, and its role of incentivising itself. The reform proposals that are presented in the paper require that two additional regulatory institutions be set up at the national level, that is; the Financial Institutions Regulatory Commission (FIRC) and the Financial Consumers Ombudsman (FCO). At the ECOWAS level, the setting up of a special intervention fund and two additional institutions is advocated. These institutions include; the West African Systemic Risk Council (WASRC) and the West African Guild of Financial Supervisors (WAGFS).

Keywords: Financial crisis, Financial regulation, ECOWAS integration, central banks

JEL Classification: E58, F42, G28