Federation of Egyptian Banks and lost independence

Hany Aboul Fotouh
4 Min Read
Banking expert Hany Aboul Fotouh

When I read the Central Bank of Egypt (CBE) Law No. 88 of 2003, known as the Banking Law, I could not help but notice Article No. 44 regarding the Federation of Egyptian Banks (FEB).To save the effort of interpreting the law for non-specialists, I will list a summary in the following points:

  • The CBE is to establish a federation of banks through its Board of Directors
  • Professional standards and rules set by the federation shall not apply except after receiving the approval of the CBE’s board
  • Governor of the CBE assigns a delegate to the federation and the delegate has the right to attend meetings and participate in discussions

The article in its current form makes the FEB a non-independent subsidiary of the CBE, where it hinders its ability to represent the interests of member banks and present their demands without fear of the CBE’s reaction—being the regulator and the possessor of the absolute power to impose its decisions on banks.

For further clarification, I will ask a few questions:

Do member banks discuss the CBE’s important decisions before they are imposed?

Can the CBE respond to the demands of the FEB and amend its decisions put for discussion with the federation?

Can the FEB lobby to change the strategy of the public policy of the banking sector or the economic affairs, when banks shall be the common denominator?

Hence, I would like to point out that in the healthy economies; it is very unlikely to find a controlling body that establishes a professional federation, where a conflict of interest is clear. How can the member banks express their views to the regulator, which has the effective control over the entity with the ultimate authority to reject the recommendations, or refuse to include the topic on the agenda for discussion in the first place?

I believe that this article in the Banking Law should be amended in order to deal with changes in the international banking arena and the role assigned to the entity, which represents the banking sector, away from totalitarian regimes that were prevalent in the last period.

I researched the status of independence of similar entities in a number of countries. The research showed that the independence of the federation is unprecedented in the countries I looked at. The common denominator in these entities is that they are established as public institutions that include domestic banks as well as foreign banks operating in a specified country—central banks are never a founder or a member.

Bundesverband deutscher Banken, or the Association of German Banks, impressed me with the way it applies political lobbying in dealing with decision-makers so that it is involved in the formation of public opinion in the political arena and at the level of economic affairs of the state for the sole purpose of serving the public good.

The Czech Banking Association is also another good example. It promotes the common interests of member banks in parliament, the government, and the Central Bank of the Czech Republic. It also plays an important role in the preparation of laws and regulations governing banking supervision.

The required an amendment to the Banking Law does not aim to diminish the regulatory authority of the Central Bank, but rather to support the role of FEB to achieve its objectives with proper autonomy.

Hany Aboul Fotouh is a banking expert.

 

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