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ROLE AND SIGNIFICANCE OF CENTRAL BANK OF NIGERIA IN THE PREVENTION OF BANK FAILURE

ROLE AND SIGNIFICANCE OF CENTRAL BANK OF NIGERIA IN THE PREVENTION OF BANK FAILURE

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ROLE AND SIGNIFICANCE OF CENTRAL BANK OF NIGERIA IN THE PREVENTION OF BANK FAILURE

INTRODUCTION TO CHAPTER ONE OF THE ROLE AND IMPORTANCE OF THE CENTRAL BANK OF NIGERIA IN THE PREVENTION OF BANK FAILURE IN NIGERIA

1.1 BACKGROUND OF THE STUDY

The history of bank failure in Nigeria can be traced back to the early 1930s, when the Industrial and Commercial Bank Limited went into liquidation within a year of its establishment due to its generosity and liberty in extending credit facilities, particularly to “managing directors” Ugwuanyi Willy (1977), pg. 33.

Following the fall of the first in degree bank in 1930, a sequence of failures occurred. These failures were linked to both clients’ and bank employees’ poor banking habits, which occurred in an atmosphere that was not governed by any relevant authority at the time.

With the establishment of the Central Bank of Nigeria (CBN) in 1958 and the beginning of its operations in 1958, there has been a return of sanity in the banking industry, if not for some economic distractions that have rocked the business at times in recent years.

This has been a major source of concern for regulatory authorities, owing to the fact that banks play a critical part in the economic progress of any nation that recognises its significance.

The absence of these obligations, or some of them, has resulted in setbacks in the Nigerian economy. One example is the efficient mobilisation of savings from funds surplus units to fund investment, which contributes to Nigeria’s overall economic advancement.

Bank failure is not unique to the Nigerian economy; rather, I analysed the extent to which it occurs and its repercussions on the economy.

Based on the situation, the Apex Bank, also known as the Central Bank of Nigeria, has increased its efforts to control bank failures, as evidenced by “the establishment of the Nigeria Deposit Insurance Corporation (NDIC) in 1988 by DECREE NO. 22″ of that year. According to Ugwuanyi, “its is an independent and automations institution” .

This is to add weight to the monetary authorities’ current supervisory and control competence in the country, provide financial and technical aid to them, and contribute to the creation per safe and sound banking environment in Nigeria Ugwuanyi.

Emekakwue has the following to say on the importance of the Nigeria Deposit Insurance Corporation as it relates to the establishment of the Federal Deposit Insurance Corporation (FDIC) in the United States of America.

“As a result of the banking crisis of 1933 where by more than seven thousand banks crashed with three thousand banks crashing in two months February to March 1933, the Federal Deposit Insurance Corporation was established” .

Despite all of these precautionary precautions, there have been instances of repeated failure in the Nigerian banking industry.

The question now is, with all of these safeguards in place, could it be the fault of bank examiners or the banks themselves, or can the failure be attributed to economic ups and downs or other factors beyond the control of supervisory and regulatory authorities and bank directors?

This research seeks answers to these questions, as well as many other works that will be considered in the process into what will prevent these failures from having a negative impact on the national economy.

1.2 STATEMENT OF THE PROBLEM

The gesture of this study repots the importance of banking in our national growth, and the questions that may arise are:

i. What role do these financial industries play in the economy?

ii. What are the true causes and effects on the economy?

iii. Will the demise of other distressed banks have a severe impact on the Nigerian economy?

iv. Will economic activity be hampered as a result of banking sector distress?

v. Is there any way to stop the escalation of financial distress?

These are some of the questions that the researcher will not be able to answer.

1.3 OBJECTIVES OF THE STUDY

The primary goal of the study is to determine whether or not the bank disaster or failure has damaged the economy’s stable economic growth. The goals are as follows:

i. Investigate the causes of bank failure

ii. To investigate the consequences of bank failure, how they can be identified, and how they might be avoided.

iii. To explain the Central Bank of Nigeria’s role and importance in the prevention of bank failure.

iii. Make recommendations on the best methods to avoid bank failure.

1.4 THE HYPOTHESIS

1. Ho: The CBN has no responsibility in avoiding bank failures.

Nigeria is a failure.

Hello:The Central Bank of Nigeria (CBN) plays a role in preventing bank failure in Nigeria.

2. Ho: The CBN does not supervise the activities of banks in the country.

Nigeria

Hi: The CBN oversees the operations of Nigerian banks.

3. Ho: The CBN does not licence other Nigerian banks.

Hi:Other banks in Nigeria are licenced by the CBN.

1.5 SCOPE AND LIMITATIONS OF THE STUDY

This study aims to explain the role of banks in the prevention of bank failure in Nigeria. To accomplish this goal, it will only examine contemporary causes of bank collapse, with a brief look back at the financial environment just before the adoption of the financial Ordinance of 1952 and the Central Bank of Nigeria in 1958. A new source of bank collapse will be introduced, which if not handled properly could result in misery.

The study looks at the economic impact of this failure, how the symptoms can be identified, and how they might be avoided.

For the research question, a population size of 150 respondents was used.

Because of the high expense of transportation, I focused my research in the following areas. Asaba and Enugu.

Obtaining information was difficult since respondents complained about the time it took to fill out questionnaires, which extended the study period, and transportation costs for library visits were not excused, including the expense of making copies of important information.

1.6 SIGNIFICANCE OF THE STUDY

These are the following:

i. It is to complete academic requirements for the award of a degree.

ii. The findings of this study will be useful to future researchers.

iii. The study will also educate the public on how banks operate and potential causes of turmoil in the business.

iv. It will be critical for both the financial sector and the overall economy, which is in a slump and facing significant credibility and survival issues.

1.7 DEFINITION OF TERMS

CBN (Central Bank of Nigeria)

This is the apex bank in the Nigerian financial system, and it is in charge of the regulation and supervision of the activities of the banks and other financial institutions that operate inside the system. It was formed by an edict issued by the Central Bank of Nigeria on March 17, 1958. It went into operation on July 1, 1959.

NBIC (NIGERIA DEPOSIT INSURANCE CORPORATION)

Established in 1988 by Decree No. 22 to supplement the monetary authorities’ existing supervisory and control capacities in order to insure the deposit obligations of licenced banks in the country and give financial and technical assistance to them.

THE BANKING SYSTEM

A subset of the Nigerian financial system that includes all banks functioning in the country’s money and capital markets.

All commercial and merchant banks are included.

NBFI (Non-Banking Financial Institution)

They are non-banking institutions that engage in financial intermediation inside the financial system.

These include insurance businesses, financial institutions, and discount stores, among others.

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