CHAPTER ONE
- INTRODUCTION
- BACKGROUND OF THE STUDY
Banks occupy a strategic position in the national economy because what they do or fail to do has a great impact on the economy. They are very vital because they(Banks) constitutes the central point on which the other sectors of the economy revolves.
Banks in Nigeria are obliged to comply with certain regulations given to them by the regulatory authorities like the CBN and the NDIC for the control and supervision of the banking industry.
To help in curbing some of the excesses of these banks, all aspects of banking shall be regulated by the central bank. This includes the amount of start-up capital of which how much cash to be held at each time, how much to invest from its funds, who to give credit and to what extent among others. The subject of this study therefore is to analyze the control mechanism of the banking system by the CBN. These control mechanisms shall be viewed by the role or functions that the CBN performs in the banking system.
1.2 STATEMENTS OF THE PROBLEMS
Now, from the premise above, we can agree that the banking industry is pivotal to every economy and even more obvious is the importance of a regulated industry. Now we must look critically to ascertain and possibly expose if the measure of control mechanisms are fully implemented and if so, how efficient are these control mechanisms.
– Often times, the bankers do not adhere to control measures not because of stubbornness but because of the ambiguity of the mechanisms and their inability to comprehend it or what it is about.
– Regulatory bodies make several regulations and establish many policies however, not all these policies are implemented and this poses a real threat to the authority of the regulatory bodies.
– As is well known, efficiency and stability in the banking system is a notable ‘sine qua-non’ to the stability of the overall economy. It is often argued that adherence to policies of the regulatory bodies are difficult because the policies on their own are inefficient.
– Several disputants still hinges their points on the fact that adherence to policies would be easier if the impact of those policies on the banking sector were made more pronounced – so, it becomes a problem to analyze the policies or control mechanisms of the CBN and to delineate their impact on the banking community and the economy at large.
– Now on its own right, it can be discovered that regardless of how sound a policy may appear to be, there must always arise a group to antagonize it and this on its own, poses the greatest problem of implementing policies.
1.3 OBJECTIVES OF THE STUDY
- To find out the control mechanisms of the regulators and clarify their policies so as to make them less ambiguous and more precise.
- To identify the problems militating against the implementation of policies established by the regulatory bodies.
- To find out how efficient the policies and control mechanisms are and just how operational they are in the banking system.
- To identify the impact of the policies of the CBN in the banking industry and the economy at large.
- To identify the hindrances and obstacles running against the smooth running of the control mechanism.
1.4 RESEARCH QUESTIONS
- What are the control mechanisms of the regulatory bodies?
- What are the problems militating against the implementation of policies by the regulatory bodies?
- How efficient are the policies and control mechanisms of the regulatory bodies in the banking system?
- What are the impacts of the policies of the CBN on the banking industry and the economy at large?
- What are the problems or obstacles militating against the control mechanism?
1.5 SIGNIFICANCE OF THE STUDY
In view of the historical fact that banking have evolved through the years from a period when there was almost no law in the industry nor any regulation in it to curb their excesses which consequently resulted in the reduction of the public confidence; this study is therefore important to the policy makers especially the central bank and the federal government as they will from it, know how best to steer the Nigerian banking industry to avoid bank failure and distress.
This study will also enlighten the reader on how these mechanisms are implemented and adhered to by the banks. This study will equally aid students of finance and serve as a base for subsequent researchers in related frontiers of this study.
1.6 SCOPE OF THE STUDY
For the purpose of this study, the researcher chose a few banks within the region – mainly commercial banks. The study covered partly the prudential guideline control mechanism and in detail covers the supervision and examination control. It also covered both direct and indirect control mechanisms.
This work equally gave consideration to the objective and functions of CBN with regards to their control mechanisms.
1.7 DEFINITION OF TERMS
CBN: This implies “The Central Bank of Nigeria” and is the apex bank in the nation. It controls the activities of every other bank in Nigeria.
FMF: “The Federal Ministry of Finance” is the primary regulator of the Nigerian financial system and plays an inter-related role with the CBN (Onyeagba 2013).
NDIC: “Nigerian Deposit Insurance Corporation” is an insurance company that insures the deposit liabilities of Nigerian banks. It equally complements the regulatory and supervisory role of CBN to ensure the safety of depositors.
Regulators: This implies any of the bodies as defined above, charged with the duties or responsibilities of moderating the activities in the financial system unless otherwise specified.
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