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This study assessed the role of Monetary and fiscal policies in regulating financial institution in Nigeria. The main objectives have been to find out the tools of Central Bank regulation of financial institution to identify those factors that influence the regulation and ascertain banks activities affected by the Central bank regulation. Attempt has been to approach these problems such as lending and loan administration, deposit mobilization and bad depth using reportorial research design and employing percentage methods. Based on these approaches, it has been discovered that banks activities mostly affected by the Central Bank of Nigeria regulation are lending and loan administration and deposition mobilization. Also, it has been discovered that the tools of Central bank regulation of financial institution are, open market operations, cash reserve ratio, interest rate, the factors that influence Central Bank of Nigeria regulation of financial institution are Government policies, depositors attitude lending and loan administration and deposit mobilization have been identified as the major activities of banksmostly affected by Central Bank of Nigeria (CBN) regulatory policies. The performance of financial institutions under the Central Bank of Nigeria tools of regulation is fair. It is being recommended that the Central Bank of Nigeria tools of regulation should be instituted to soften the banks to cope effectively with the tools. Also, the tight monetary policies of government should be loosened to enable banks to operate in a competitive environment. Capable and competent staff should be employed in these financial institutions so that the public relationship of those will be attractive to depositors and customers, such that they can freely go on with their businesses with these financial institutions without hindrance. This lending policy is frustrated by the availability of deposit resources which is the main raw material for bank’s lending among others. It has been recommended that the Central Bank of Nigeria should conduct its business in such a way that adequate control of regulation of financial institutions should be enforced so that the performance of financial will be excellent. In conclusion, therefore, since these financial institutions are the life wire on which every activity depend on for the economic develop lent, the focus of Central Bank of Nigeria (CBN) regulation of financial institutions is to instill market and policies monetary stability in the financial system. Also, Bank or financial institution’s performances could be encouraged if adequate attention has been made to carefully follow the directives of Central Bank of Nigeria (BN) regulation and development as need arises.
TABLE OF CONTENTS
TITLE PAGE - - - - - - - - - i
ABSTRACT - - - - - - - - - ii
TABLE OF CONTENTS - - - - - - - iii
LISTS OF TABLE - - - - - - - - iii
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND OF THE STUDY - - - - - 1
1.2 STATEMENT OF THE PROBLEM - - - - - 4
1.3 OBJECTIVES OF THE STUDY - - - - - 6
1.4 SIGNIFICANCE OF THE STUDY - - - - - 7
1.5 RESEARCH QUESTIONS - - - - - - 8
1.6 RESEARCH HYPOTHESES - - - - - 8
1.7 SCOPE AND LIMITATION OF THE STUDY- - - - 9
1.8 ORGANIZATION OF THE STUDY - - - - 10
1.9 OPERATIONAL DEFINITION OF TERMS- - - - 11
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 THEORETICAL FRAMEWORK - - - - - 14
2.2 THE FOCUS OF CENTRAL BANK’SREGULATION - - 31
2.3 THE ASPECT OF CENTRAL BANK OF NIGERIA (CBN) MONETARY AND FISCAL POLICIES REGULATIONS- - 37
2.4 NATURE OF BANK REGULATION - - - - - 43
2.5 NEED FOR REGULATION - - - - - 45
2.6 EFFECTIVE AND COMPETITIVE FINANCIAL SYSTEM - 49
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 RESEARCH DESIGN - - - - - - - 51
3.2 RESEARCH AREA - - - - - - - - 52
3.3 SOURCES OF DATA - - - - - - - 52
3.4 METHODS OF DATA COLLECTION - - - - 52
3.5 PROBLEMS OF DATA COLLECTION - - - - 55
3.6 POPULATION AND SAMPLE DETERMINATION - - 56
3.7 MODEL SPECIFICATION - - - - - - 57
3.8 TECHNIQUES OF DATA ANALYSIS AND HYPOTHESES TEST - 58
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 DATA PRESENTATION - - - - - 61
4.2 DATA ANALYSIS - - - - - - - - 63
4.3.1 HYPOTHESIS TESTING - - - - - - 67
4.3.2RELATIONSHIP BETWEEN BANKS INVESTMENT (BI)
AND INTEREST RATE (IR), MINIMUM REDISCOUNT
RATE (MRR) GOVERNMENT BUDGET (GB) AND COMPANY INCOME TAX (CIT) - - - - - - 69
4.4 DISCUSSION OF FINDINGS - - - - - - 71
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND CONCLUSION
5.1 SUMMARY OF THE STUDY - - - - 73
5.2 CONCLUSION - - - - - - - 74
5.3 RECOMMMENDATIONS- - - - - - - 75
LISTS OF TABLE
THE RELATIONSHIP BETWEEN ASSET BASE OF BANK (ABB), AND INTEREST RATE (IR), MINIMUM REDISCOUNT RATE (MRR), GOVERNMENT BUDGET (GB), AND COMPANY INCOME TAX (TAX)
RELATIONSHIP BETWEEN BANKS’ INVESTMENT (BI) AND INTEREST RATE (IR), MINIMUM REDISCOUNT RATE (MRR), GOVERNMENT BUDGET (GB), AND COMPANY INCOME TAX (CIT).
1.1 BACKGROUND OF THE STUDY
The central of money supply is one of the most important objectives of government because of its supply on the economy. It is for this reason; that government empowers the apex of its financial house, the central Bank of Nigeria to implement its monetary policies and to regulate the activities of financial institutions in ;the country’s financial system.
Therefore, the Central Bank being the apex of the Banking system in Nigeria represents the Government, being so close to both the government, and the banking sector, advices the government on monitory policy and also its implementation on behalf, of the Government. It also promotes monetary stability around financial system. The Central Bank involves in the insurance of legal tender currency, the maintenance of the value of domestic currency, enhancement of the mobilization of funds and facilitates completion among banks and non banks financial institution within the system. The Central Bank plays a major role in Nigeria growth and development. It is worthy of note to say that the Central Bank is on varieties of structures, functions, and power which are by products of the economic, political and other realities prevailing in the society (Adekanye 1983-141, Nwankwo 1990:1018).
The growth and development of internal trade along the West African coast in the Nineteenth (19th) century played a major role in extending the medium of exchange beyond trade by barter. The “Native currency” system with depended on items such as cowries, manila, brass and copper rods had to accommodate foreign currencies such as the dollar and British silver coins, it was increase trade which motivate the setting up of Bank of British west Africa (BBWA) in 1894, thereby reducing drastically the barter system of trading and ushered in a rudimentary form of commercial banking. The issue of legal tender currency for West African region was however withheld until 1912 when the West African currency Board was established.
The West African Currency Board (WACB) was an offspring of the recommendation of the EMMOT committee set up by the secretary of states. The Rt. Hon. Lewis Harcourt. The West African Currency Board (WACB) retained the services of the Bank of British, West Africa as it currency distributed agent. There were four (4) currency centers set up in Lagos in Nigeria, Accra in Ghana, Freetown in Sierra Leone and Barthurst (now Banjul) in Gambia. The currency circulation in West Africa increased steadily through 1950’s in response to the growing demand for West Africa primary products such as cocoa groundnuts and palm oil and increases in the world price of such products.
However, the West Africa Currency Board (WACB) did not have discretion of any control over the money stock of the territories under its areas of influence. It was set up firstly to promote the financing of export trade in particular; it was charged with the issue of West African currency, the exchange of existing currencies, and the repatriation of such currencies and the investment of reserves. There was a fixed parity between the local currency and the British pound, with the currency having 100% sterling coverage. The reserves were invested Britain and thus in a way, facilitated Nigeria’s international payments.
As the West Africa Currency Board (WACB) was then linked to the British system, the investment policy was rather conservative in the sense that sterling reserves were invested only in Britain. Also, the West Africa Currency Board (WACB) could not engage in monetary management and Nigeria was not trained in the act.
In order to eliminate this deficiency and promote the growth of the domestic money and capital market especially as the country marched toward political independence in 1960, the Central Bank of Nigeria (CBN) was established by the Central Bank of Nigeria Act of 1958 while it commenced business on 1st July 1959 with an initial capital of N3.0 million (Central Bank of Nigeria Monetary and credit policy Guideline 1994, 1-7). The main provision of the Act establishing the Central Bank of Nigeria (CBN) were among others to issue legal tender currency in Nigeria, to maintain external reserves in order to safeguard the international value of currency, to promote monetary stability and a sound and efficient financial structure and to act as Banker and Financial adviser to the Federal Government it does this through the bankers monetary proposals during the preparation and presentation of annual budget others include occasional meeting with the head of state. The central bank of Nigeria (CBN) promotes the flow of saving which are essential for development of capital by providing a conducive environment to enhance savings and investment in a country. It also provides development finance for both the public and private sector of the economy, Central Bank of Nigeria (CBN) also serves as a banker to other financial institutions (Adekanye 1983: 143; Essien 1994: 148-150; Umoh 1993: 171-178).
1.2 STATEMENT OF THE PROBLEM
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