AN EVALUATION OF BANK FAILURE AND ECONOMIC DEVELOPMENT IN NIGERIA
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AN EVALUATION OF BANK FAILURE AND ECONOMIC DEVELOPMENT IN NIGERIA
EVALUATION OF BANK FAILURE AND ECONOMIC DEVELOPMENT IN NIGERIA, CHAPTER ONE
Every government’s purpose in any economy is to maintain economic stability. As a result, it is critical that the authorities in charge use policies to indirectly regulate the system.
This implies that any country’s government implement certain economic policies in order to consolidate a specific macroeconomic goal or purpose. Some of these important economic policies are monetary policies, fiscal policies, and exchange rate policies.
The majority of these policies can only be administered through the agent of a commercial bank, which is the focus of this research endeavour. In Nigeria, for example. Since the formation of the Central Bank of Nigeria (CBN) many years ago, monetary policy have been undertaken in a wide-ranging economic context.
Essentially, monetary and fiscal policies are one of the most important and strategic economic policies implemented by the government of the country in order to consolidate certain economic goals such as economic growth acceleration, sustainable balance of payments, maintaining a stable exchange rate of international competitive level, combating inflation, price stability, and full employment.
According to the CBN in 1994, monetary policy is the collection of policies used to govern the values supplied and the cost of money in an economy. According to the level of economic activity.
Anyanwu (1993, VS 140) defines monetary policies as “measures designed to regulate and control the volume, cost, availability, and direction of money and credit in an economy in order to archive some specified macroeconomic policy objectives.”
Fiscal policy, on the other hand, is the government’s attempt to shift the aggregate demand and aggregate expenditure functions in the desired direction through expenditure and tax policy.
According to Anyanwu (1997, VS 241), fiscal policy refers to the part of government policy that deals with raising revenue and deciding on the level and pattern of spending for the purpose of affecting economic activities or obtaining certain desirable macroeconomic goods.
The complexities of managing monetary and fiscal policy to achieve the intended macroeconomic goal demand the necessity for an independent body, as is the case in Nigeria today. The federal government is the sole monetary authority, but it has outsourced some aspects of execution to both the ministry of finance and the central bank of Nigeria in order to promote the financial system.
The CBN is authorised to utilise monetary policy tools or instruments to achieve a particular policy aim, and the CBN performs the majority of its functions through commercial banks. This strategy is divided into two groups: direct portfolio control and indirect portfolio approaches.
The open market operation (OMO), reserve requirements, and the discount rate mechanism are all part of the indirect portfolio. Selective credit control, credit selling, and moral suasion are examples of direct instruments.
Furthermore, monetary policy assumes a link between the supply and demand for money on the one hand, and economic aggregates such as output, income, savings, general price level, and investment on the other.
The mix of monetary policy instruments to be utilised, as well as their effectiveness, are determined by this connection. Monetary policy is the management of money. According to Ojo (1992, VS 3), monetary management is the act of managing the movement of monetary and credit aggregates in order to achieve stable prices and sustained economic growth.
As a result, the central bank or central monetary authorities must make an effort to keep the money supply rising at a suitable rate in order to ensure long-term economic growth, domestic and external stability. However, the significance of monetary and fiscal policy in Nigeria has grown dramatically since independence.
This policy has been implemented by both civilians and the government to consolidate macro objectives. However, despite this measure to accommodate the constant changes in Nigeria’s economic situation, the economy continues to face a number of challenges, including high unemployment,
inflation, and balance of payment issues. This inspired me to conduct study on the functions of commercial banks in maintaining currency stability.
1.1 STATEMENT OF THE PROBLEM
The application of monetary and fiscal policies by the monetary authorities using monetary instruments such as open market operations (OMO), bank reserves, and so on in accordance with the prevailing economic situation aims to consolidate the country’s macroeconomic good such as full employment, low inflation, and a favourable balance of payment.
However, despite the multiple monetary policy measures implemented in Nigeria, the economy continues to suffer from high unemployment, inflationary pressure, a balance of payment deficit, and volatile foreign exchange.
The question that follows is how effective monetary and fiscal policies are in controlling some of these variables, particularly inflation. Why have monetary and fiscal policies late in the economy when they have work in other countries? What could be the impediment to the success of monetary policies?
What can the CBN do to help consolidate foreign exchange stability, given that commercial are the enzymes utilised by the CBN in administering economic measures? In response to the above-mentioned query, this research will attempt to provide as many answers as feasible.
1.2 OBJECTIVE OF THE STUDY
The study seeks to discover the following;
1. To reassess the instruments of monetary and fiscal policy, as well as their performance.
2. To investigate the country’s primary policy objectives and their achievement.
3. To assess some monetary and fiscal policy initiatives in Nigeria and observe how commercial banks respond to their directives.
4. Make recommendations to policymakers
1.3 SIGNIFICANCE OF THE STUDY
This research is significant because it attempts to establish the relationship between monetary and fiscal policy, as well as the function of commercial banks in economic stabilisation. It is envisaged that this work would improve the use of monetary and fiscal policy in achieving macroeconomic goals related to economic growth and development.
1.5 DEFINITION OF TERM
Commercial bank: The commercial bank was the first type of bank to appear in Nigeria. In 1892, the African banking cooperative with headquarters in Liver Pool opens a branch in Lagos.
It encounters some difficulties before evolving into what is today known as Nigeria’s first bank. Expert rate banks were the first to operate in Nigeria.
They dominated the system until 1933, when they were joined by the first sovereign indigenous bank. A commercial bank is defined under the bank and other financial institution decree No.25 of 1991 as any bank in Nigeria whose activity includes the acceptance of deposit and withdrawal by check.
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