can we say that our finacial regulatory frame work is one of the best in the world.

The level of stupid risks undertaken by US banks leading to majority control by The US government That advocates for a liberalised market Shows that kenya learnt its lesson in the 90s given that no kenyan bank has collapsed from the heat.

Whats the difference btwn China And US If The US govt Protects its Companies whenever they face difficulties.

VVS.....but what would have happened if the US Treasury & Congress didn't intervene in the Fannie Mae & Freddie Mac case? I think it was a choice based on two opposing forces/fears......"systemic risk" and "moral hazard"....they were damned all round, whether they intervened or didn't. They had been throwing lots n lots of trash (gambles & bets) under the wall street carpet...it has to come out one day!

I think the parallels being drawn between kenya's and usa banks are based on the false assumption that banking means the same thing in africa as in the west....it doesn't! but if it does, then sela n guru r spot on to the extent that our banks are conservatively regulated.

Still, there is no real comparison between kenya's and the west's banking-financial systems.

A guy who grows sukuma and sells to the lorry-owner, who in turn delivers to marigiti where mama mboga buys n then sells to you and me is a model of biz that is very unlikely to cause financial probs. Our banking is like that, almost like simple trading in money. Not so much by choice rather coz we r always behind those we imitate!

Now, add abstractions like speculation in commodities, futures, derivatives and debt swaps, n the sale of sub-prime mortgages based on our sukuma wiki model and ur risk increases 1000fold!

Now let the banks be the main speculators, and the main lenders to other speculators, as well as the main buyers of speculators' "abstract" trades in sukuma wiki biz and u get the whole economy at the mercy of the innocent sweet sukuma wiki musical chairs, at some point the rapid movement of trades and debts has to stop somewhere... unfortunately, with the govt or the economy crashes down to simple sukuma wiki trade, where it all started.

I disagree, disagree, disagree... The same GoK that created the mess is being lauded as a saviour? The same (or different) idiotic bureaucrats were at play!

KPLC - In years past, KPLC was under the thumb of politicians & cronies. samuel gichuru was more interested in political ralies than running the firm. You do not see Njoroge at political rallies!

GoK gave KPLC a raw deal in the past. Controlled OUTPUT prices (supply at fixed prices) while INPUT costs (forex, thermal/oil, salaries, copper cables) was all variable.

NBK - Puhleeze... the only loans it made were political. Every politician from moi to a crony like pattni 'borrowed' from NBK. This stopped only after 2002 when Marambii was made MD.

HFCK - I do not recall a government bailout. The recovery/foreclosure process in Kenya is 5 years unlike the USA where it is much shorter. Please provide more details as to the bailout. At most, CBK didn't put them into receivership considering the high bad debts. There was a major Rights Issue.

You can't say liberalisation has failed when you tie the hands of the same banks/firms!

@VVS
We have a meeting of minds on this interesting discussion.

What folks do NOT realise is that the 'restrictions' on Kenya banks also caused high inflation & low economic growth.

What I failed to say, is the obvious maxim, the higher the risks, the higher the returns! U r spot on, the more conservative u r the lower the risk but logically, also the lower the gains... That was an important cog u introduced.

@vvs. interesting opinions and I'd like to attempt to contribute to this topic. But firsly could you explain that statement further...
What folks do NOT realise is that the 'restrictions' on Kenya banks also caused high inflation & low economic growth.

Unfortunately I'm one of dem folks. And as for the Kenyan shylocks, how do they tie in to that statement above.

I don't understand what you mean that Fannie Mae & Freddie Mac caused the problems in housing as far being guaranteed by Congress. Who regulated the FMs? As I understand (from what I read) they provided liquidity through CMBS as well as a self-regulating mechanism to mortgage lenders...i thot this system worked well, but the degeneration of these standards were accelerated by the banks that assumed that role (in collusion with ratings agencies & urged on by the Fed)...so doesn't selah's point on liberalization make sense (less the China comparison).

If a deregulated banking system creates economic growth and low inflation, historically, why have any bailouts at all...if the judge of prosperity is low savings rate, but high standard of living dependent on a spendthrift mentality then, somebodies got to pay for (what the austrians call) the unwinding the malinvestments. High risk, high reward model seems unsustainable, and not every1 can do it at the same time. but a lot can be done to make the Kenyan banking system more efficient...my 2 cents.

@scubidu - Bailouts are a Moral Hazard... They generally benefit the profligate & punish the cautious!

As for the FMs... u can read the stuff online... It is too much to explain here... I cant start typing it all out... and I do not have the time either!

@scubidu - Great reading, huh?

Essentially, the FMs became too huge & the political clout was immense... Warren Buffett warned about them...

I actually think those saying there are differences in banking regulation between Kenya and US are missing the boat completely. Au contraire, there are similarities. Like in the US, the Kenyan banking regulators have been captured by GoK and banks and merely operate at their whim. Can u see Ndungu ever closing down any bank let alone Equity or KCB?

Where there are differences and what has saved the Kenyan banking system, is that we have a very simple banking model and Kenyans are not yet at the same "borrow and spend" levels that the fat Americans are at.

@Ric Dees - IMHO... Kenya lucked out... not coz conservative but under-developed...