The banking industry again came under pressure last week. Over the last five years, monetary policy has withstood the worst of adjustments to the myriad macroeconomic constraints endured by the country. With the Treasury continuing in business as usual, the nation’s banks have seen profits decline (or fail to rise at trend levels), as the central bank ramped up the cash reserve requirements on public and private sector deposits, and forbade banks from charging fees on services it deemed essential to boosting domestic access to financial services.

Increasingly, a princely portion of deposits held by banks ends up with the central bank, where these increasingly expensively sourced funds just sit idling away. While this depletes the funds available to banks (to lend on to the economy, or to arbitrage money market failures), it also has the (supposedly) unintended consequence of driving up rates. Needing to earn as much on a narrower deposit base, banks simply push lending rates up.

The take on the utility of the monetary policy moves pivots on so many interpretations. The monetary authorities largely argue that excess bank liquidity feeds into demand for dollars, and is thus a contributing factor in the recent depreciation of the naira. In other words, that the banks do not lend the deposits they generate, preferring instead to drive domestic costs higher through arbitraging.

Now, it is hard to have observed the domestic economy, however cursorily, over the last 12 months and then reach this conclusion. First, since late 2013 (if not earlier) some commentators have fretted over how much of the then relatively high oil prices the economy was benefitting from. Up until mid-June last year, crude oil prices traded around US$116 per barrel, while the balance on the external reserves languished below US$40bn.

In addition to “fiscal leakages”, two new exculpatory phrases entered the national lexicon: “oil shut-ins”; and “oil pipeline theft”. Under the weight of these three phenomena, the country apparently could not produce enough crude oil nor earn enough dollar revenues to drive the expected accretions into the external reserves.

All of these were before the bottom fell out of the global oil markets. Swooning oil prices matter because oil receipts make up the larger share of the country’s export earnings and revenue. Thus, the markets were right to worry about the economy’s ability to meet demand for foreign exchange. Inevitably, some front-loading occurred, as economic actors sought to buy more dollars than they usually would have required at that stage of the economic cycle. Nevertheless, this was only because everyone was certain that the naira was headed in only one direction: down.

It did not help that the macroeconomic authorities stumbled hand over foot in their response to these challenges. While the central bank’s continued belief in the instrument of the RDAS, remains one of this period’s more intriguing mysteries, one thing is clear: economic actors (the banks inclusive) respond to the structure of domestic incentives.

The challenge before managers of the economy, therefore, is to structure our local incentives in a way that best assures our desired outcomes. Blaming the banks’ excess liquidity for driving speculative dollar demand misses this test. Fact is that the central bank’s continued tightening of monetary conditions does indeed ignore one key signal: how banks’ exposures to the national oil companies (whose take-over of the marginal fields abandoned by the international oil companies assumed oil prices at US$100pb) may contribute to the buildup of systemic crisis in the industry.

Everyone agrees that our banks do not lend enough to those sectors of the economy in need of such monies, and whose spend is likelier to support higher output growth. Household debt-to-income ratios, here, are a minuscule fraction of what they are elsewhere. And even in the grey economy where higher debt service rates push this ratio higher, they are not likely to be material.

An agenda for the reform of the banking sector along lines that might result in improved lending behaviour would include the design of incentives that de-risk sub-prime level transactions. Much has been made of how a proper national identity system and functional credit bureaux might help this process, but arrangements that help defray start-ups costs or subsidise small businesses’ upfront research are equally important.

To its credit, the central bank has occasionally headed in the right direction, especially by seeking (of late) to design practical solutions to high transactions costs. But more could be done by exempting low-value bank balances from regulatory charges.

Last week’s decision by the office of the Accountant-General of the federation to compel agencies of the state to move their revenue accounts away from commercial banks and back to the central bank, qualifies as another useful such incentive (rare in this instance in its provenance).

Pity, then, that a sense of the government’s parlous accounts (it needs all the monies it can get), and the thinking behind previous initiatives which ended up attenuating banks’ deposits conspire to guarantee that this initiative would be misunderstood and resisted.