University of Nigeria Virtual Library

Serial No

Author 1

CHIBUIKE, Ugochukwu Uche

Author 2

Author 3

Title

Banking Regulation in an Era of

Structural Adjustment: The Case of Nigeria

Keywords

Description

Banking Regulation in an Era of Structural Adjustment: The Case of

Nigeria

Category

Banking and Finance

Publisher Journal of Financial Regulation and

Compliance

Publication Date June, 2000

Signature

Banking regulation in an era of structural adjustment: The case of Nigeria

Chibuike Ugochukwu Uche Received (in revised form): 28th January, 2000

Departnent of Banking and Finance, University of Nigeria, E n ~ ~ g u Campus, Nigeria;

Dr Chibuike Uche holds a doctorate in accouoting and finance from the London Schocl of Economics and Political Science. He is currently a senior lecturer in Bank- ing end Finance at the University of Niger.:a Enugu Campus.

ABSTRACT Prior to the 1986 adoption of the Strlrctirral Adjtrsi~ncrrt Progrartrtne ( S A P ) ir, Nigeria, tlre goverirrttcrrt was tlie ttrain plnyer both iri tlie prnctice drtd rcyultrtior( ( I f bartkirr'y irz tlre court- t ry . A t the tirtre, this arrnrrgemetrt was expedi- ilrrt S ~ V ~ I I the govcrrrr~ierrt o/Gectivt of preverttiriy tlre dorrrirratiorr of a very rtnyorta,rt sector of its cco~rotvy b y J~reigrrers.&~r&r this p r e - S A P dis- pcrrstrtiorr, however , the yovertrttrerrt role as both orvtier o f marry of the large hanks and r e p - lntor of the 6arikirig irrdristry sortletirrrcs broiylrt the yovcrrrrrrerr~ itrto corlpict witlr i t s e y T h e utloptrorr oJ' SAP, wtriclr lrns led ?0 pverrrrrrerrt divest rrcrrt of its shares irz most bmrks, has trow extcrtsively, nltcred the re lat ior~slr i~ 6etweert batrks arrd the goverrzrtretlt ( rep la tors ) . T h e airn qcthis paper is to help hetter utrclerstand the variot:s-forces that irtrpact orr the vey~rlatory pro- ccss for b a t ~ k s iri Nigeria. It wi!l nlso srrgp& wnys of ttrnkir~,q rqrrluticw more {fl ictive itr an ern oj'strrrctural djrrstrrrerrt.'

INTRODUCTION Regulation is a dynamic p r ~ c e s s . ~ T o be effective, the regulation Frocess must

change 2nd adapt to changes in its wider environl-:lel~t. T h e 1986 adopticn o f the Str~~ctur::l Adjustment P rogramme (SAP) in Nigeria, has extensively alterec the rela- tionship between banks (both commercial and mer:hant) and the governine~i t (regu- lators). For instance, government has since started c.ivesting its shares in s u A banks. This nia kcs such banks more in lependent o f the p v c r n m e n t . Such banks a r c there- fore in ; better position to mak: eff2ctive rcpresen:ations to the govcrnn ent wi th respect 70 the regulation of th r banking industry T h e h c t that the g t vcrnmcnt previouzly owned majority share; in many o f the big tllrcc banks in Niger.3 made it diffficult for such banks to clia lenge the government, even when government actions ,were undermining the envrironment of bank-ng. For instance, the c u r x n t bank- ilig cris.s ill Nigeria has somct:rnes been traced tc) government fiscal indiscipline and its attendant i n f l a t i ~ n . ~ Such Jig banks should l ~ a v e been at the forefrol- t i l l orga- nising t.le banking industry as a pressure g r o u p vrith the aim o f persuadin< the gov- ernmen* to exercise some d i sc i~ l ine in its fiscal sp:nding with the a im o f x o m o t i n g a hcalt l y nlacroeconomic en., i ronmcnt, but t l y r did very little in this regard. T h e fact t h a ~ the appointrncnts to thc board and JaurrlalolFlnanclal ~ u l ~ l ~ ~ ~

and Cornpl~ance Vo 8. Na 2. n1anagc:nent of such banks w t rc usually nooo. PP 157-169

Henry Slewarl Pub11 allans. politicaiiy nlotivatcd made it d~fficult for 1358-1988

such appointees to engage the government 4 in any ~neaningful dialogue. T h e govm1-

nlcl~t 's role as both o w n e r o f nlally of' the large banks aild regulator o f the ba lk ing i ~ ~ d u s t r y somr:tlnics broilgllt tlic govcrn- mellt in conflict with itself.

Wi th pr ivaisa t io~i , bureaucratic con:rols are being abolished whilc governmcl~ t is divesting its interest ill several i n d i ~ t r i e s including bancing. This has Icd to changcs in the rclatiol~ship bctwccn tliesc inclu:trics and thc govrrnment . In some indusvics, privatisation has also bcen accotnpanicd by deregillation. Tlic idea bch i~ id such dcr-gu- lation is tha: market forccs shoul2 be allowed to dc:ermine most aspects o f com- mercial o p c r ~ t i o n s . Government s113~1ld have little business in the dctcr~ninat icn o f which compaily should fail o r in the e.,tab- l i sh~nen t o f entry barriers. Dcregulaticn ill the banking industry has, however, seer1 less far reaching nlainly because o f the spe- cial nature o r the b m k ~ ~ i g ~ndus t ry . T h e a im o f this p lpc r is to help bcttcr i 1 1 . d ~ ~ - sta~l'd the v,~rious forces that Impact or, the reg~l la tory prscess for banks in Nigeria. It will also suggest ways o f milking re;;ula- tion m o r e efl2ctive in an era o f structi~ral adjflstment. This will help ensure stability and g r o w t h 111 a very important sector o f the economy. T o acllicvc its objective this papcr is divided into four parts. T h e first part examincs the hpecial nature of the banking industry while the second discusses the pre-SAF banking environment in Nigeria. T h e third part annlyscs tlic impact o f S A P on the banking rcg~llat iou process while the fourth concludes the paper.

REASONS FOR REGULATING BANKS T h e banking industry is special in terras o f regulation as experience has shown that failure ( b a n k r ~ ~ p t c y ) in this industry has external c o n ~ e q u e l ~ c e s . ~ T h e cotlcer-1 to safeguard tlic viability o f the depocitary industry arose f rom the fact that fin:lncial failure had s'gnikicant external effects that

reachcd bcyolid the depositors and stock - holders o f the financial firm. T h c d e p o s - , tary institution p!aycd an important role ; s

the chicf conduit in both the payment prr - ccss and tlie sa-rings-investment proccsc. Failurc o f indivir.ual firms in the dcpositar y industry may I c ~ d to widcsprcad clepos:t runs that could overflow to other depos - tary firms.6 This has come to be known : s the contagion efkct . In justifying its s u ~ - port operations during the fringe bankin; crisis o f 1973, ior instance, the Uank t f England argucd h a t it found itself:

'confronted with the inltninent collapse ( 4 several depos.t-taking institutions, a13.j wi th the cle:~r danger o f a rapid y escalating crisi:. o f confidence. This threa .- ~ ~ l e d other Jcposit-taking institutio!.~ and, if left ~uncliecked, w o i ~ l d halie quickly passed into parts o f the b a n k i r , ~ system prope5. While the UK clcari1.g banks still a13pcarcd sccilre from the domestic c f i c r s of any run - indeed tlie rnomy-markc: deposits withdrawn fro:ii the fringe we-e largely rcdepositcd w i h then1 - their ilitern;~tional exposure w 1s such that the risk to cxtcrnal confide11 :e was a matter c f concern for theniselves 1s well as for the Uank. T h e p r o b l e n ~ was -0

avoid a wicening circle o f col1ap;e through the cc ntagion o f fear. 7

Institutional developments like the rise . I I

inter-bank Icnc'lng m c l vaoils 111011~'y market opcrntio 15, propelled mainly by tlic spirit o f conlbetition with thc aid ~f advancements i,i information technology, have also added to the c o ~ ~ t n g i o n problel-1. Thcrc has, therefore, bcen a steady rise ill thc entwinemel t o f banks, not just wi4i thcir customers, but also with other ballis. Therefore. n o n x t t e r h o w small a f i n a u c d i l ~ s t i t i l t i o ~ ~ may 5e, the impact o f its failure may have far-rcaching effects o n the entjrc financial systc~ri In lilic with this, the 1945 A n n i ~ a l I lcport of the FeJcr;d Reser lc

Brink o f N e w York, co l - .~n~cn ted as fol- lows:

'The interconnectiom antong institutions and lilarkets in the n c w m v i r o n m e n t get m o r e and nrorc c o ~ n p l e x . A shock that starts in olic nlarkct may sprcad quickly along this nc twork uutil it f i ~ ~ d s a wcakncss in some sccn-.iugly unrelated place. In fact tllere is a g rowing tendency t o build financial links along regulatory fault lines w h x e thc responsi- bility for supervisory oversight is \vcak, divided o r clouded'.'

T h e d a ~ l g e r o f contagior! is particularly acate for tlie banking system. If a cement nianufacturer fails, for instance, the ill effects are likely to be felt most by thosc wrlo have had dealings wi th the institittion. T h e repcrci~ssions for the industry and thc gencral economy as a whole will tend to be much less serious. In fact, the competi- tors nlay inherit sonle o f :heir latc rival's ~ n - ~ r k c t sliarc. T h e abovc scenario can, of course, occur in a r ~ isolatcd bank h i lu rc especially when thk reason. for the failure caii be clcarly seen t o be spccific t o the bank o r a g r o u p o f banks. In certain cir- cu~tistances, however , thc collapse of a bank could, in t& abscnce o f any official action, lead to loss o f confidence in the encire banking system and a subscqucnt Inass withdrawal o f dcpositors' funds f rom the system. Iri such a scccario, thcrefore, irrespective o f tlie bank's balance slicet strength, it may still be rendercd insolvent by the actions o f o ther banks."

4 1 ~ 0 , thc increased intcgration of the financial system, which has resultcd in the risa in intcr-bank dcalings, 1-as increasccf the prospects o f contagion should onc b u l k fail. Therefore, when thc Sanking systenl cooperates to save a distrcsstd member , it is more o f a self prcscrvatio~i act t11n11 ar.1 act o f charity. It is mainly o n the above basis thc t it has been possible t o secure the coop-

e r a t i m o f the banking con~n lun i ty in times o f c:istrcss. For instancc, du, . ing the 1973 scco:ldary bunking crisis ill U r i t a i ~ ~ , Inrgc sum: o f Inoney flowed out ,?ron~ the sec- o n d x y banks to the clcari l~g b a ~ ~ k s . These filndi wcrc rccyclcd back to thc secondary banks through the famous 'I'fcboat opera- tion' '' It is thus clear that it :F the prob1~111 o f contagion tint is the r c a w i for prevc~lt- ing ~ h o s c w h o d o not meet :he ~n in i lnu rn requ:remcnt necessary to ach cve thc status o f a bank o r licerlscd dcpos.t taker fronl takit:g deposits. If thc p r o b l : ~ ~ ~ of colltn- gion did not exist, therc n i ig l~ t be a case for confinitig rcgidatory action ;-o only 'club men-ibcrs' wi thout going 011 to fornially bar non 'club ~ncmbers ' f rom carrying 011

depositary b~s inesses . ' " '~ N o t all ailing banks liavc x c ~ i saved in

the ~ x t , however. 13etween 1933 and 1982, 620 banks failed in the USA alone.13 T h e size o f a distressed ballk, n o c.oubt, plays a ~ n n j c r role iri dc t c r~n in ing whcthcr it gets hclpcd. For instancc, the br'ililig out , in 1984. o f Continental I l l i~o i s (USA), was

justif ed by the t l ~ n Fcderal I k p o s i t Iusur- ancc Corporation (FDIC) Cmir lnan , Mr Wil l . i~nl Isaac on thc grounds :hat:

'closing die bank aud pay i l~g off insured dcpositors could havc liaci cat.1strophic collscquences for other b m k s m d die cntirc ccouoniy. I~isured accounts totaled o ~ i y slightly Inore tl1hi $3bn. This n ~ c a n t that depositors and d i c r privatc creditors w ~ t l i over $30b 1. in c la in~s wculd havc had their filndj tied u p for ye;rs in a bankruptcy procecding awaiting the l iquidatio~l of w e t s and tlie set.lcmcnt o f litigation. I-Iundreds o f sni.111 banks would havc bec.1 particularly liard hit. Almost 2,300 s l n ~ l l banks had nearly Sbbn, at risk in Co~lt:ncntal; 66 o f them had more tlian their t apital o n the linc a ~ ~ d ; i~lothcr 1 13 had bc~wcc11 50 and 10C per cent. More general'y, closure o f a t a n k whose solvency w; s apparently

no t impaired, in response to its I quidity and co17fidence problems wouid have raised concerlls about other co~undly manage6 banks'.'"

In some developing countries, this may create problems. For instancc, ne-N indi- genous banking busiilesses are likeiy to be small wit17 perhaps insignificant e fec t on thc financial system should such b a - ~ k s col- lapse. Suck banks therefore will be xnlikcly candidates for assistance under thc above regime. It is perhaps because o f this that the p r o t c t i o n o f infant industries has become a reason for Sovernlncnt interven- tion in b m k i n g (and other busin~.sses) in some courtries. (This will bc d i sc~n :ed latcr in this section.) Size alone, howeve.r, is not the only explanatory factor in thc theory o f which distressed bank gets asiistance. O t h e r factors, n o doubt , are usually part o f thc explanatory variables.

T h c dcs:.rc by some countries to h i t o r preclude forcign participation in :I scctor which is .-e ~1rclt.d as vital to die proper f4 fimctioning o f the national e c o n o a y and thc a t t a i n ~ ~ c n t o f n a t i o ~ ~ a l policy objcctivcs is yet anotncr reason for govcrnlncat inter-

15 vcntion i ! ~ bankiug. This is usually entwined wi th the typical infant .ndustry

I6 argument . It was in t l~ is respect :hat the Iieserve Bank o f Australia cautioned that:

0 'Banking is a key sector o f the e::onomy p r o v i d i ~ g the communi ty with money balances and payn~en t s arranpernents. Control o f ownership o f bank: should therefor- be maintailled in A .~stralian hands t c ensure concern for the national interest. Foreign banks niay be inclined to give prior place to cornrnercial advantage o r to a ~ i o t h e r c ~ u n t r y ' s

9 17 national interest .

T h e proteztion o f depositors is yet another objective o f bank regulation. Subscguent to the U S A f:nancial crisis o f l92'+lC)?3, bank-

ing regulator: around the world emphzsised this objectivi. Such an cmphasis drcl i its strength fron-, the political and social t: znds evident in m:ny countries towards the pro- tcction o f cL7stomers and away fron: the principles of cciveat rmptor. Thcrc is usu: lly a case for dev-ating from the cc~vcczt lJi lp tur principle in c x t a i ~ i industries. This is -spc- cially so where it is inherently diff~culc for the individud o r consumer to asses the goods o r services he is buying o r wher : the learning process for society may bc judgcd too costly o r difficult.

'The fact that an institution is supe r~ i scd may be t a k a perhaps inappropriately, t o mean that they have been give1 an oficial seal o f approval. It is as a collsc- quence o f !-his that it may be argucc. that the supervisory authorities carry . o m c responsibi l~~y towards the membe. s of the public. T h e belief may also groyv up that either the authorities will not :.llow the institut ons to fail o r , where thc) f;~il, depositors ill be compcnsatcct. 19

Many cou~it i ies have deposit p r o t c ~ t i o ~ l scl~cnics in opcr:~tion. In the UK, the deposit protection board provides protcc- tion for only 75 per cent o f deposit., for total deposit? of up to L20,000. I r thc USA. where the bank failurcs o f the '930s proved a .:nore traumatic cspcrixice, depositors d1:finitely have a better dcal: deposits o f L I ~ to $100,000 are p r o t c c t d in full. T h e l i~xitat ion in the protccticn o f depositors. i ~ : the UK implicitly ass1 mcd that even the small man s l~ould not bc fully compensated for losses duc to niisma!.agc- ment. If a dcpositor can earl1 a 11.ghcr return by piacing funds with somewhat higher risks, full compensation may tlc an undue inccn t~ve to continue in his wzys as he will be earlling all the interest wlii'c chc risks arc b0rr.e by another party.20

Banking rzgulation does not, how-vcr, only ainl at preventing banking fai'ures.

Banks may also be regulated to ensure that they carry o u t their activities in accordance wi th the wider economic and social objec- tives o f tlne country. For irstance, it is no t unusual for banks, especially in developing co,untries to be given credit policy guidc- lines espccially on the sectc.ra1 allocation o f loans, eithcr by govcrnmer t o r the central ba:ik. Banks have also been instructed b y the governnient to avoid investments in certain sectors o f the economy, either by direct ban o r b y niaking it unprofitable for them to d o so. Another re-son for regulat- iiig the financial system .:telns f rom the n e x i to fostcr thc efficiency a d intcgrity o f the market b y minimising the problems that may arise f rom conflicts o f intercst on thc part o f market particip:~nts. Here, therc are various ways o f ensuring that conflicts o f interests d o not arise a d , where they d c , that thcy d o ~ i o t impact on the intcgrity o f the market." In Britain, at least before th- Big Uang (in l986), the b r o k i ~ l g f i~nc- ticn was separated f rom the jobbing fimc- ticm.22 In other words, stockbrokers could o~:ly act as agents t o their clients m d job- bcrs could not deal dircctly wi th the invest-

ing Tlle early bank charters in the U S A also enshrined the separation princi- plc. By 1930, howcvcr , si!.ch a separation sy:;tem had been abandon:d in the U S A and commercial banks had become the d c millant force in the distribution and

24 underwriting ofasccurities. Wllcther t l x banking crisis o f the early 1930s was a con- sequence o f the abandonment o f thc separa- ticm principle has rcnnainccf a contentious issac a m o n g scholars and banking practi- tioners alike,'= al though the advent o f tlic Giass Steagall Act implicitly endorsed such a view. T h e next scction will discuss the pr+AP banking environnrent in Nigeria.

PRE-SAP BANKING ENVIRONMENT IN NIGERIA Commercia l banking in Nigeria com- rncnced in 18'31 wi th thc advent of the

African 13anking Corporation 111 1894, the 0pcr;tious of. the batik were t ~ k e n over by the Bank o f British ?;lest Africa ( ~ 1 3 \ ; i r ~ ) . ~ " I n 1899 a second %reign bank, Bank o f Nigeria, was estab.i~lned.~' This bank was absorbed by the B E W A in 1912. UUW'A had t l ~ c b:~nkiiig field in Nigeria to itself for the next four years, with thc year 1916 seeing the advent o f the Colonial ~ a n k . ' ~ Barclays Bank e~l tcred the Niger- ian banking arena in 1925 through tlne merger between the Coloni-11 Bank, the Angl3-Egyptian Bank (which it already owncd) and the National B ~ n k of South Africl to create Barclays D a d . (Dominion, Colo.iial and Overseas).

Cc;lonial banking in Nigeri* was initially cstab,ished to providc ballkin: services for the government and the Bri;:ish commer-

2') cia1 enterprises thcn in cxiste:icc. It was t1nere':ore not surprising that thesc banks were rcgistered iti London, I:cadquartercd in London, and controlled f.-om London. T h e x l o n i a l banks tlius fell u , ~ t l c r the rcg- ulatory jurisdiction of Loncon and had little need for host te r r i tor~l regulation. T h e y established operations, in localities w h c r ~ British commercial ill-ercsts prcdo- mina:ed3' and did no t a im :o satisfy the ncccl. o f thc indigrnous ~ f r i c l n . ~ ' ' ~ ~ In the cycs 3f the British authorities ~ n d the colo- nial mnks , thc African was zoo primitive t o n ~ e r i t ballking services 2nd uncrcdit- c v o r t ! ~ ~ . ~ ~ T h e color~ial bank: were, how- ever, williwg to receive African deposits, 3 4

prod-.~cing accusations o f ~ i sc r imina t ion with the aim of p e r p e t u a t i ~ g colonial intcr-

3i ests. Thcse discriminatory policies and practices by the British cc,lonial banks mot i .~a tcd Africans to estab1i:h indigenous bank; to chnllenge the statu. quo. In this rcgard, Nigeria was unique: it was the only c o u n x y among the pre-indcp:ndence Urit- is11 P frican colonies that develaped an indi- gcnolrs banking system aongs ide the color.ia1 banking system. 36-38 Othe r colo- nies vvere cithcr ovc rwhc lmel by colonial

legislntion wllich made it inipossible fclr the indigenes to establish banks3\r their c c o ~ i o ~ n i c s provided an i n a d c q ~ ~ a t e b a x for such corn~iiercial banking.40

T h e first indigenous bank in Nigcria commer~ced operation in 1929 with tlie acquisition by some African businessmen o f tlie Industrial and Comnlercial 3ank which was originally establisl~ed a s an overseas bank in London wi th the a i n o f carrying ou t b a n k i ~ ~ g business oversea; but was stillborn because o f the outbre: k of W o r l d W a r T h e bank was s.iort- lived and. we:it into l i q ~ ~ i d a t i o n in 193'3. Its failure has been attributed to misniariage- ~ i i c ~ i t , x c o ~ ~ ~ i t i ~ i g i ~ i c o ~ ~ i p e t e ~ i ~ c , c~nbr.zzle-

42 rnent and the noncooperative att:tude and denigrat..on o f colonial banks.43 T h e sccond indig=~ious bank that came into opcra t io~i - die Nigerian Mercantile .3:1nk - also had a short arid chequered lifeipan. It was establkhed in 1931 and by 193C-, tlie bank had failed. In 1933, the National Bank bccame the first indigenous succ:ssfi~l bank to be c;tablislied. This was followed by the Nigerian Penny Bank which was shortlivccl. 111 1947, t w o othcr banks (Afri- can Continental Bank and the Nigzrian Farmers and Comnlcrcial Bank) were establisl~cd. In 1948, the Fedcral Go,rern- ment , worried about thc spate o f indlgen- ous banking establishnic~it and ~ i o t unmindful o f previous indigcnous b a r - k i ~ ~ g failures, appointed M r G. D. I'ator-, an Official o f the Bank o f England to 'cnquire generally into the busiricss o f b a n k k g in Nigeria and make recornmendatioi~s tnj the Government o n tlie form and extel t o f control wliich should be introduced'. M r Paton s u b m i ~ t c d his report in October 1948. This cu!niinated in the 1952 N i g x i a n Banking 0rdt .nance.

T h c passing into Law o f the 1952 Eank- ing Ordinance, extensively altcrcd thc ;.>lay- ing field for indigenous banks in thc British West African Co lony o f Nigeria." These

, , ! i~ id igcnous ba:lks were n o w requircd tcb:

- 8 - . have a nom.nal share capital o f at 1e:x /v25,000 o: wliich not less t l ~ m L12,500 s l io .~ld be paid LIP

be licenscd by the financial secretary -.n

order to be able to carry on banki: g

abstain from gra~i t iug loans ar~.d advances o n the security o f their o \ , n shares and granting unsecured loans ar-~d advances in xcess of A300 to any o l e o r niore of Irs directors o r to a busin1 ss in which it c.r any olie or more of thc ir directors hac any interests nlaintain adt quate cadi reservcs niaiutnin a reserve fund ou t o f r - t profit each ;,c.lr of uot lcss tliau 20 p :r ccnt o f s u d . profits ~111til tlic rcscr re fund equals the share capital refrniti froni paying divitlcnd ~ m t d $11 tlicir capitaliwd cxpetiditurc not reprl- sentcd by :mgible asscts had be .n written off'a l d make pcrioc'ic returns to tlic fi11anc:nl sccrctary.

More damaging to these indigenous b a d s, however, were ss 5(2) and 6(2) o f the orc i- nance which ga re the existing banks thr I C

years within w:iich to comply with t le provisions of th- ordi~iance o r discontin !e banking busines:. T h e fact that the itidigc 1-

ous banks wcre givcti a n~ax i rnu tn pcricd of three years to meet wi th the r e q ~ ~ i r : - m a l t s o f the n e w ordinance o r face 1iql.i- dation, couplcd wi th the fact that t11e.e was n o deposit insurancc sc l~cinc in pla:e to conipcnsate kpos i to r s in the cvent .>f such a liquidation precipitated a r u n c n thcse indigenou: banks.45 Tliis contributf d to tlic evcntunl f d u r e of scvcral o f tlicic banks. Bctwee.l 1953 and 1954, [,)r instance, 17 of thc 21 indigcnous banis .. then in existence failed.

T h e Nigerial-! banking system subs 2-

qucntly rcmainc.d fairly stable until 19: 6 .

when thc Daban+h Administration, und :r ;

pressure from t w International Moneta y .\

Fi1r.d and the World Rank, launched the Structural Adjustment P r o g r a n ~ n ~ e (SAP). The stability of the Nigerim banks, prior to the introduction of the SAP, was in part due to government support. For instance it

has been noted that before the introductio~i of the SAP, government was unwilling to k t ally bank fail, no matter the bank's financial condition and/or yuality of man- agement. Goverrinlent feared the potential adverse effects on confidence in the bank- ing system and in the econo.my following a bark failure. Consequently, government del. berately propped up a ni!rnber of incffl- cicnt bar~ks thus implicitly protecting the sha~el~olders. In the new economic policy dispensation emphasis has shifted from direct support of banks to prevent failure to m e of protecting the deposits of custo-

46 mers.

SAP AND THE CHANGING NATURE OF BANKING REGULATION In 1986 the Rabangida Adrninistration, under pressurc from thc International Monetary Fund and the World Rank, launched the Structural Adjustment Pro- gramme. SAP was dcsigncd to achieve bal- ancc of payment viability by altering and res:ructuring the production and consump- t i o : ~ pattcrns of the econorxy, eliniinating prize distortions, rcclucil!g the heavy dependence on consumcr goods imports and crude oil expdts , e ~ ~ l ~ a n c i n g thc non- oil export base, rationalising the role of thc pu3lic scctor, accelerating the growth potential of the private sector and achiev- in^ sustainable growth. T o achieve the above objectives, the main strategies of the programme were the acioption of a msrket-dctern~incd exchangc rate for the Ffrira(N), the deregi~laticn of external tradc and paymcnts arrangements, reduc- tions in price and administrative conp-01s and more rcliance on market forces as a 1n2jor determinant of e cono~r~ ic activity. AF integral! part of this programlne was

the deregulation of the banking system. Bank licensing policy was libcralised givinr rise to a proliferation cf banks and other finance institutions. Bc:ween 1985 and :l992, for instance, the number of licenstd comnlercial a d men hant banks, in the country, increased fron- 40 to 120. Most of these new banks wcre no more than t-urea~rx dc c/zar~.yr. The deregulation of the ezonomy, loopl~oles anc. someti~nes o~t tr ight evasion of the law mlde it possi- ble fcr sornc of thc new banks to survive and pyosper by mainly buying- and sclling

47 foreign exchange. Thc deregulation of thc economy cre-

atcd 5oth risks and opportu~:ities for the banks and there was increased competition not ji'st among banks but also with finance h o ~ ~ s e s which were also a creazion of gov- ernment deregulation. SAP therefore fun- damentally changed the sx-ucture of banki .~g in the country. The llew spirit of compztition meant that the dxision as to whetl--cr banks sl~ould fail or ~ . o t was liow to be dcter~nined by market Grces. Gov- ernrnr:nt thcrcfore focuscd 0.1 protecting the dqositors, hence the esta.dishment of the ;VDIC. Government guarantee of deposts, altlioilgli linlited, also necessitated closer prudential monitoring ..)f the activ- ities of these insured banks. Subsequently, in l!.,91, the Central 13ank of Nigeria Decrce Number 24 (CRN Dc:ree) and the banks and other financial institutions Decree Numbcr 25 (BOFID) were pro-

48 mulg.~ted. Prior to that pe:iocl, one of the l r ob l c~ns that plagued the Nigcrian financial system was the lack. of adequate legal framework for effective regulation and supervision of thc bankiilg system as wcll .IS the non-bank tinancia. institutions. The repealcd C B N Act of 1'958 and the 1969 Banking Act werc not only inadc- qilate but were riddled with :.mbiguitics. 49

The 13BN Decree made it possible for the Central Bank to report directly to the Pre- sidcn rather than tl~rough thr: Ministry of

Finance ($3). Furthermore, thc bank acquired t h r powcrs to cornpilc and circu- late to all banks in Nigeria, a list c f bank debtors whose debts to any bank h:d been clarified by bank examiners (s.52). T h e B O F I D f i~ t the r vested the C B N with the sole responsibility of licensing both banks and non-balk f i~ia~lc ia l instituticns (ss 2,3,56 and 57). Also thc C U N was vested wi th powcis to dcal with any ailin: bank arid failed bank. For instance, the C B N , with the approval of the Presidel-t, can assume control and management of a fail- ing bank (5.34) and apply to a court either t o purchase a failing bank, for a n ~ m i n a l fee, for thc purpose o f rcstructurin;; it o r liquidating . t (s.36).

T o c n h a x c the banks' ncwly ranted administrative enforcement powers, o f thc regulatory ::uthorities, the dccrecs overflow with provisions imposing high mcnetary penalties r m g i n g from N5,000 to h l m as well as imprisonment tcrrns ranging f rom oric to ten years. T h e N D I C , at thc time, cndorscd t : ~ provisions of the tiecrecs assciting thz.t thcy have:

'gonc a long way to lay dowr: clear guidclinc: for a sound, safc and e'ficient banking system that will bc responsive to innovation, competition and chmging social a r d economic nccds c f the

50 nation. 0

Despite these powers granted the regula- tory bodies, banking stability in post SAP Nigeria is s5ll yet to be achicvcd. 111 1998 alonc, at least 26 banks were liqu-dated. This has, in the main, been because o f thc inability o f rhc C13N to perform cf&:tivcly somc of its Ltatutory functions.

O n e o f tlie main objcctives o f thc Ccn- tral Bank o f Nigeria is the prornot:orl of monetary slability a n d a sound fi~:aucial system in ~ i ~ e r i a . ~ ' T h e Government l ~ o w e v e r has a considerable say !!I tlie

, . ' appointme~i. : o f the Inanagcrnent a d the

directors of thc C B N . For instance, the governors, deputy governors and the dl:-ec- tors o f die b m k are all appointed by the President (ss $. and 11 of C l3N Decrc:: of 1991). Also die decree only requires :hat the C D N sIia.1 'use its bcst cndeavou- to niaintain external rcserves at levels cor;icj- cred by the B m k to be appropriate for the monctary systxn o f Nigeria' (s.25). T.lese provisions no Iloubt givc enormous Icc,vay for Sovernmc:it t o influence central b211k- ing policies, especially with respect to financing g o v x n m e n t activities. Tliis was one of thc reaions w h y thc British co1c:lial governincrit vras re luct ;~~i t to sanction the establishnlent -)f a central bank in Nigc ria. It was t o prc.ve~it such control that thc British colonill government ensured .hat the 1958 C B N Ordinance which they n id- wifed con ta i~~rc l a clause specifically s t a c i ~ ~ g that:

'The valuc c f thc rcscrvc. . . shall- (a) for a period o f i v c years. . . be not less t'lan thc aggrega!: of an amoun t rcprescn: ing sixty per ce,-It of the Bank's notes \nd coins in ci*culation togcthcr with an amoun t rcp-csenting thirty-five pCr :urt o f the Banl:'s other demand 1iabili.ics; (b) after five years.. . be not less t ian forty per ce rt o f the aggregate o f the Bank's note: and c o i ~ ~ s in circulation -:~td other dernand liabilities' (s.26).

T h c 1991 Dec cc, however, contans sc ~ I I C

provisions thar: if adhercd to will l clp ensurc thc 5ttzinment o f the policy ob.:ec- tlve of Inone ary stability. For instar-ce, 5.33 of the d c c x c m c r t s ttiat:

' the Dank m l y grant temporary aclva~ ccs to the Federll Governlncnt in respect of' temporary dzficiency of budgct revc I U C

at such rate of interest as the bauk detcrrnine. . . T h e total amoun t o f s ~ c h adva~tces outstanding shall not at L I ~ V

t ~ m c excecci -welve and a half per cell of

the estimated recurrent budget revenue o f the Federal Government for the year ill wliich the advances arc granted. . . All advances made pursuant to this section shall be repaid as soon as possiblc and shall ill ally eveiit bc repayable by tlic end o f the Federal Governnlent financial year in which they are granted and if sucli :~dvances r e n n i n unpaid at the end o f the ycar, the power of the Bank to grant such further advances in any subse- quent year sllall riot be exercisable, u111ess and until the outstandin= advances have been repaid'.

Unfor tu~ ia t e ly , this imporrarit provision is rarely heeded and thc C B N has continued tc f u ~ i d the g o v c r ~ l n ~ e ~ ~ t fis-a1 deficits with- o u t any inhibitions, adva~ycing morc than 5G per cent o f the budg.:ted revenue in s c m e years. Ok igbo , in his yet to be pub- lishcd report , argued that o n n o account must the governor cithcr be made o r be a1 o w e d to break the law. Xis report tllcre- fcre proposcd that the brc-ach o f this law sl>ould be a sufficient ccrldition for his removal as Governor o f the C B N . ~ ~ But will such a provision help? N o t necessarily. A govcrnmcnt that flouts c n e law can flout a ~ ~ o t h e r . In o ther words, the problcm is not necessarily with the law but with its irnplcmentation. Just as ezsily as they are made, they can either bc broken o r rcvoked.

This problem is perhaps more pro- nounced in undemocratic countries wi th totalitarian regimes, where there are n o ~ l - ~ e c k s and balances in the govern~ncn ta l proccss. Such governments are unlikely to achere to any strillgent n o n c t a r y policy rcquircments cxcept where therc is an jnzentivc for thcrn t o d o so. Since sucli governnlcnts d o no t dcrive their support f rom the ballot box , electoral consi4era- tions are o f littlc consequence. Focus m a y be o n policies that keep thc military happy in ordcr tc) prevent an i n s ~ r r e c t i o n within

its r i n k and file. Unfortuna:ely, Nigeria, prior to its recent denlocracy witnessed 15 years o f contiliuous military r d e .

Apart fro111 die peoplc, a.iothcr strong cons:ituct~cy that can support anti-ilifla- tionary mcasurcs are b a ~ ~ k ; which arc usua!ly well orgaiiised, f ina~~cia l ly strong and :nfluential. I t has bcen argued that tllc balance slieet structure o f ba-lks (maturity mismatching o f a s m s and l ~ a b i l ~ t ~ c s and non-marketable nature o f xsets) rendcr them par t icul~r ly v u l ~ i c r ~ b l c :o inflat i011.~~ It is :hus in die intercst o f s u h institutions to Ivbby for the enforccme l t o f policics tliat will help in tlic achiev:ment of the c s t ~ L lishcd monctdry policy nl>jcctivc of pricc stability. As has alrcady bccn men- tionccl, govcrulncnt fiscal i~ l , l i sc iy l i~~c has bcen identified as one o f the r lain cduses o f the current banking crisis in Nigeria. Unfr~rtunatcly, the Nigerian banks have becn uriablc to constitute an :ffcctive anti- inflation lobby group partly xcause many o f tl?c big batiks were, until recently, gov- crnn .ent-ownccl o r governnie i t-controlled. T h s has made i t difficult for thc banking scctcr to unite in ordcr to rcprcsent an cffcc.ive force that can eitt.cr lobby o r coerce the government to pur5uc non-infld- tionzry policies. T h e y can a so side with thc central bank h o u l d the government wan: the central bank to disobey the law. Ovc,-rcgulat~on by the C e c t r d Bank o f Nigeria and the Nigcria D e p x i t Insurance C o r ~ o r a t ~ o n ( N D I C ) c o u p k d w ~ t h the smal size o f the Nigcrian f i ~ alcial systcm has slso n ~ a d e ~t difficult for t lesc banks to conssitute an cffect~vc allti-irflation lobby grou?. For instance, it has been notcd that:

' the small size of the finmcial systcnl rclltivc to G D P reduccs Sanks' clout. [Also] . . .central banks' extensive rcgula- ticn o f banking activities a ~ i d interest ratzs in LDCs through tXlc 1980s has terded to dilute FOI [fir.ancial sector op?osition to inflation] as banks concen-

trated their political capital o n oppo;ing (or altering) regulations and adopting a nlorc confrontational stance with the ccntral bank.54

T h c strengthening o f this potcntially impor tant g r c u p will, therefore, be cr.tical in any attem1;t to develop a suitable er~vir- onment that will enable the central bal- k to carry ou t its IegisIated role fcar1essl~~. A robust financial system, if created, will rcprescnt a 5trong constituency for low illflation w11j:h can side with the C13N should it chossc to obey thc law a n r dis- obey the government. In this regard. thc continuing divestment o f govcrn ment interests in filxmcial institutions is wclc31ne.

SAPS also rlenlal~d a change in the strat- egy for training and recruiting r egu l~ to r s . W h a t thc programnle has done is to mfuse entreprcncur:al ingcnuity into thc vx ious scgments o f d ie Nigerian cconomy. Entrc- prencurs push against the boundaries o f cxisting law. In fact, in solnc c a m , thcir operations lie outside the law. Bureauxacy, howevcr , dccs not always allow the gov- crnmcnt (regulators) t o rcwritc the k w s in order to k c ~ p pacc with thc activities o f such cntrcprcncurs. Also, undcr a n a r k e t economy, it is easy to accuse such grlvcrn- ments o f Foating regulations that stifle competition For instance, govcrr rncnts f i fd it diff cult t o stand by and watch whc11 banks collude to manipulate tt c for- eign exchange market. Tliis is especially so givcn thc imperfect naturc o f thc N gcrian cconomy. Any interference wit.1 thc ~ n a r k c t in form o f regulatory controls, could tamper wi th thc long-tcrln work- ability o f such nlarkcts. Anothcr asscct of thc problem is the fact that S A P has cxtcn- sively promoted competition I m o n g employers with respeGt to wagcs. Partly because o f bureaucracy, regulators' wagcs - regulatcrs arc usually clnployed by the govcrnrnel:t - almost always lag behind

. those o f private entrepreneurs. Again,

4 :q *, ,+

L,

4 J

l**v

-34 4,

B partly becallre o f bureaucracy, silcll regula ?<I tor? arc rlowcr a: r eac t~ng to tcchnologlca

changcs. T h e result IS that rcgulatorb hav .1 Inferior credcntlals and rxpertlse wl i c~ , y: compared to the people they are suppose I 'g .n to bc regulating. A sunlmary o f a yct to b: y ! published report on the Ccntral U ~ n k c f 'ii

r l r ]

N l g c r l ~ noted th it: ':j .I -3

' W e found g-eat resistance to modcrn I:> ~8 technology in the kvel o f operators th. t

*.,

ought to ernl.race it. So much m o m y -i .I2

has been scandalously thrown d o w n t1.e ;*

drain in fi-l.itless and ~mcoordinat td -< pursuit o f coriputerisation in the past 8 ''i years. T h e Central Bank ought -0 ,..I

provide leadei ship in the use o f inform 1-

tion technology within the financ a1 scrvices indus.:ry. It is a sad irony that it is morc backward and priniitive than t ic financial inst.tutions it is expcctcd ro csamine and iupcrvise'. 55

T h c cffcctivcness o f regulation under si.c11 circumstances is suspect. Under such cir- cumstances, it 9ecomes easy for regulators t o be corrlprohised o r outwittcd by :hc rcgul;~tces. In c t l ~ c r words, such rcgulat on will bc o f littlc consequence.

CONCLUSION T h c adoption s f SAP in 1986 fundam :n- tally altered th: playing field for both h e practice and r:gulation o f banking in :hc Nigerian finarcial systcm. Whilc govr rn- ment IUS at least, to a great cxtcnt, divc*.ted its intcrest a'nd withdrawn its subsidy to the banking system, it has failed to crcatc a conducive macro-cconornic cnvironmcnt for the operat,ons o f such banks. Unfo,:tu- nately, some c r these banks, mainly bec lust

o f past gover-lmcnt involvement in their owncrship str lcturcs, have becn unabl- to pcrsuadc the governnicnt to pursuc pol cics that can prorrote a stable macro-cconc.mic environment. This has affected the eTec- t i ve~~ess of rc p la t ion . Regulation has also

b e e n i m p e d e d b y t h e inabi l i ty o f t h e regu- Ir t o r y authori t ics t o k e e p pacc w i t h devel- c p m e n t s i n b o t h b a n k i n g a n d technology. l l n t i l t h e a b o v e issucs a r e effectively

addressed, it wi l l b e d i f ic .d t t o a r g u e con- v inc ing ly tha t SAP has, ill gcneral , been of benefi t t o t h c financial system.

An earlier version of this paper was pre- sented at the World Serviccs Congress, 1- 3 November, 1999, Atlmta, Georgia. R c g ~ ~ l a t i o n generally s ~ g g c s t s some form of interventioll in any :ctivity, and ranges from cxplicit legal control to informal peer g roup colltrol by govcrtlmellt o r some such authoritative body. Ogus. A. (1994) 'Regulation: Legal f o m and economic theory', Clarcndon Press, Oxford, p. 1. Uche, C . U . (1996) 'Tne Nigerian failed banks decree: A critique', J~rtrnul of Inter- rmtional Barikir~g Law, Cctober , pp. 438-9. Uche, C . U . (1999) 'Gwernrncnt owner- ship o f insurance cornpallies in Nigeria: A critique', Geneva Paper: on Risk and Insrrr- m c e , April, Vol. 24, No. 2, p. 224. T h e supervision o f banla, unlike the other non-financial industries ariscs from the u r l i q ~ ~ e fiduciary responsibility which baukcrs assumc when they accept other peoplc's money for szfe keeping. It is, t l~crcfore, not surprising that the defining activity for statutory control is usually the act o f deposit. Cookc, P.W. ('1982) 'The role o f the bankin s:~pcrvisor', Bonk of England Qirartcrly 8 u i l c t h , Vol. 22, p. 547. Thc losscs of depositar j hilure are, how- cvcr, riot constrained tc thc depositors and deposits. T h e external effects are ~lsually large. For instance, thc cun~ulat ive failure o f the dcpositary industry has been identi- fied by some scholars as the rcason behind the great depression of the 1930s. Spell- mall, L.J. (1982) 'The c'epository firm and i d u s t r y : Theory, histcry and regulation', Academic Press, N e w York, p. 9. Bank o f England (1978) 'The secsndary banking crisis and the Bank o f England's support operations', Bank of Etiglund Quar- terly B~illl;tin, Vol. 18, p. 233.

Federal Rescrve Bank ,,f N c w York (1985) 'At~nual Report'. p 26. Eank o f England (1984) 'The business o f financial supcrvision', Rork of Ei~glnrrd Qirarterly Brtllefiri, Vol. 24, p. 49. Reid, M. (1986) 'Lessons :or bank super- vision from the secondar) banking crises' in Garclcner, E. (ed.) 'UK banking supcr- ~.

vision: Evolution, practi:e and issucs', Allen and Unwin, Londor, p. 100. Bank of England (1984), o:o. cit. , p. 50. T h e is, however, a cass for protecting the unsophisticated dcpccitor from the u~lreliable operators. TI1.s will be clis- cusscd later. Dale, R. (1992) 'Intern; tional banking dereg~11;ltion: T h e great :)anking experi- tncnt', Blackwell Publishes, Oxford, p. 8. ibid, pp. 9-10. Ilcscrve Bauk o f Australia (1979) 'Sub- nlission to the C o n ~ ~ n i t t c c o f Inquiry into the Australian Financial S ~stcrn ' , Rescrve Bank o f Australia, Sydney chapter 12. It is usually argued that i': is necessary to offcr some form of protec.:ion to indigcn- ous cornpauies. Such protection is required in order to pro.ect thctn from the usually bctter equipptd forcign com- panies. This is llecessary Tor the survival and constraincd devclopn-.ent o f indigen- ous con~parlics. United Nations Centre for Trans National Corporations ( U N C T C , 1981) 'Tra~is:lational banks: Operations, strategies and their effccts OII

developing countries', L'llitcd Nations, N e w York. Reservc Bank of Australi;. (1979), o p . cit. , chapter 12.6. Ulunden, G. (1977) 'Irternatiotlal co- operation in banking supcrvis,ion', Bar~k of Etrylar~d Qi~ar ter ly Uulletirr, Vol. 17, p. 325. B:lnk o f E~igland (1984), c ? . cit. , p. 49. A possible solution to t l x problem is to allow privately run insursnce schemes to cater for the protection o ' the depositors. But this has its o w n prob ems. T h e possi- bility o f a claim docs not only depend o n systematic risks but also n unsysten~atic risks. T h e incentive, on t l e part o f man- agemcnt, to behave with . h e care may be reduced if dcposit ittsura7,ce can be pur-

chased. P!:ivatc insurers may tackle this problem by varyiug the prcniiiini rates clcpc~idirig on the riskiness o f the de?osit taker. U w k o f Etigland (1984), op. ci!., p. 49. Fund nlanagenicnt and bond issuiilg, for instance, iiivolve potential conflicts o f interest, yet U K baiiks perforrii both activities 1nd arc ablc to maintain the con- ficlence o r their clients by ensuring tnat a Chinese wall o f silcticc exists betwecri the different ~ctivitics. An alternative w l y o f maintaining niarket integrity is to c.nsure fitll disclosure o f the activities o? the tnnrket. 'Th is will enable custorucrs to c l~eck that they are getting the .;oing prices. T!le bost approach to adopt i: o p c ~ i to a r g u r ~ c n t . For instance, it coil d be arguecl that the abolition o f a single capa- city coilid lead, through agglon~etat ion, to substar~tial econonlics o f scale. CII the other haxcl, the infortnatioli requi! ecl to makc thr disclosure system work co.lld be vcry ex~erls ive both to produce an<: con- sume. U w k of England (1984), op . :it . , p. 47). As a result of the Uig Ballg, jobbcr: were rcplaccd by nlarket makers. T h e rcgulatiotls changed in 1986. Both stockbrckcrs and market makers are now able to :ct in dual capacity. They CHI, for instance deal directly with investors (buying and selling securitics fron: their o w n books), or act as agents, putting deals togethcr for clients on comtnission basis. There are, however, rules to ensure that investors are not disaclvantagec u~lder this dual capacity system. See Blnk o f Englmc' (1985) 'Changc i l l the Stock Exchangc and regulatiort o f the City', Bank ( / E r g l a n d Qr~ur ter ly Bulletirr, 1'01. 25, pp. 544-550; and Bank o f Englane. (1987) 'Chang;: in the Stock Exchangc a d regu- latioli o f the City', B w k of Eriylcrni @ ( I T - terly Bulletirl, Vol. 27, pp. 54-65. See Da!c (1992), op . cit . , for an a d y s i s o f events ieading to t11$ abandonmen:. See also Dale (1992), op. cit. chaptcr 2, for a review of the debate. For a general rcvicw o f thc circurxtanccs surrounding this takeover, sce ;!ry, K.

*,: -1;

..,Ld ' -.< -. . , +,*+

f$$ (1976) 'Bankc rs in West Africa', Hutchit: . ,... ;;<; son, London. . "+:;+ a .

T h e bank w7s initially called the Anglc- {-!;j ...;:.

African Bank atld renatned in 1905. b h r :,,kc -,,a

Bcforc thcn, tlie Colonial Bank had a su, - I.;: . '* cessful opcra:ion in the West Indics spa1 - $:;

4:r ning allnost 30 years. .$: .. .. .!Y -,-

Rownn, D . C . (1952) 'Banking i l l Nigcri:: ;;;! - . A study in zolonial finallcia1 evolut io~ ', .:,;:

? > Bamu N u z i ~ r t d e rlcl L~tvoro Q u r r r t c r ~ ~ ::, R e v i e w , Vol 5 , p. 161. .!.,

.L7

Around 195(;, for instance, thc t w o Briti .I1 rj, banks which corttrollcd 90 pcr cent o f t.ie .y I':

bank deposits in Nigeria o p e r a ~ e d only :3 5" .* branches in 17 towns o f the territot J-. 7

. <.

(I<owan ( I9 i2) , op. cit. , p. 163). P C 7

Uchc, C . U . (1997a) 'Bank of England ;is :;I i2

the IBKD: Did the Nigerian c o l o ~ y -e rlcserve a cmtral bank?', Explorutiorrs in Ecorronric I - l ! ;~ory , April, Vol. 34, Issuc 2, p. 222. Uche, C . U (I997b) 'Banking "Scand: I" in a Britist. West African colony: h e politics o f :he African continental bs.lk crisis', Firicrr.cic11 History R e v i e w , May, V 31.

4, Issuc 1, p 52. Fry (1976), 3y. c i f . , p. 116. T h e propo-tion of credit that wcnt to Nigerians ;was insignificant c o n ~ p n c d with their deposits. Okigbo, P.N C. (1981) 'Nigeria's financial system'. Lo kg- nian G r o u l , Essex and Fry (1976), ay. cit, p. 216. Azikiwc, F. (1961) 'Zik; A sclection f r m i the speech~s of Nnamdi Azikiwc', C; 111-

bridge Un.versity Prcss, Cambridge, pp. 211-213. Newlyn, W . T . and R o w a n , D . C . (1!54) 'Moncy art1 banking it1 British colc l id Africa',.O;rEord University Press, p. 9(.. Urowtl, C.V. (1966) 'The Nigerian bmk- ing systcn!', Gcorgc Allell alld Uilwill Liniited, London, p. 24. Note tha : some African govertlni~lits established cornnlcrcial banks in the cl:ling days o f ::olonialisn.l. For instance, tllc Natioilal 3 a n k o f Ghana, which was 100 per cent cwned by tlie governn~ent , w x cstablishcc in 1952. Uchc (195 7a), op . cit., p. 223. Onoh, J.I< . (1982) 'Money and b a n k i ~ > g in

Africa', Longman Publishe\-s, New York, p. 95.

(41) Ayida, A. (1000) 'A criti.:al an;dysis of banking trcncls in Nigeria.' in 'Nigerian Institute of Social and Econ:mlic Research Conference Proceedings', Nigerian Insti- t~ l tc of Social and Ecoiiomic Research, Ib;~dan, p.29.

(42) Newlyn and Rowan (1954). up . [ i t . , p. 98. (43) Azikiwe, N. (1956) 'Banking nlonopoly

in Nigeria: State~ncnt madc by the 14011. Prcniicr in tlic Eastern Housc of Assembly OII 8th August, 1956', Governn~ent I'rin- wr, Enugu, p. 3.

(44) This was the pionecr b a d i n g legislation in Nigeria. The Ordinance also applied to foreign banks exccpt for thc fact that whilc the iudigcuous banks werc required to mniutain n paid LIP capital of A12,500, tbrcigu banks wcrc requircd to nlaintain E100,000. Unlike rnost loc;il banks, for- zig11 banks did not have r:-~uch d i tkul ty in complying with the provisions of the Ordinance since their Ilcadq~~artcrs wcre usually abroad a d they had bctter capital b;ise. For instmce, by 194t., the I3a1ik of British West Africa (BB-WA) ;ind t l ~ c Barclays Bank had a paid L p sharc capital 3f A1,200,000 and Li',l21,500 rcspec- tively while that of the AFr,.cnn Contincn- tal Uank was only L5,00C. Paton, G.D. (1948) 'Report on banks a:id banking in Nigeria', il~~publishecl Ba~;k of England file copy, OV68/I, folio 165, pp. 4-6.

(45) Ncwlyn and Rowan (1954), op. [ i t . , p. 239.

(46) Nigeria. Dcposit It~surance Corporation (1935) 'The role of the Nigr-ri:~ Deposit I~:s.~ral~cc Corporation ill t1.c financial sys:cnl of Nigeria, NDIC, Lagos, Fcbru- ary, pp. 1-2.

(47) Uche (1996), up. [ i t . , p. 439. (48) T h e repealed the C B N Ordinance of

19=8 and the Banking Act of' '969 rcspcc- tivzly.

(49) Nigeria Deposit Insura~ice Corpor:~tion (1991) 'Review of developmmts in bank- ing and finance during the t h r d quarter of 199 1 '. Niger ia Deposit I tzs~rrawe Corporrl-

tior. Qtrnrterly, September, p. 8 (50) NDIC (1991). op. [ i t . , p. 2. (51) 0 :her objcctives of the Bank illclude: thc

i s s ~ e of lcgal tcndcr currcncy i l l Nigeria; to maintain cxtcrnal rcscrvcs in order to s;ifi.guard the international vduc of the legal tcnder currency; and ac: as banker anc financial adviser to the Federal Gov- erc.nient (CUN Decrec, 1991, 2.2).

(52) Nc.us~vatclr 24th October, l f94 , p. 32, Ni;eria.

(53) Pozen, A.S. (1993) 'Why c:ntral bank iniepenclence does not cause low infla- tio.1: T l~e rc is 110 institutional 'ix for poli- tic!', in O'Urien, 1t . (ed.), 'Finance and Intsrnational Economy', Oxfc rd Univcr- sit: Press, Oxford, p. 48. "

(54) M:s, I. (1994), 'Central bnrk indepcn- cle~:cc: A critical view', the World Uank Poiicy Rescarch Working F'apcr 1356, W~shington DC, p. 6.

(55) Nc-us~untch, 24th Octobcr, 1 9 9 ~ , p. 33.