THE LEGAL PERSPECTIVE TO CAPITAL RECONSTRUCTION OF BANKS IN NIGERIA.
THE LEGAL PERSPECTIVE TO CAPITAL RECONSTRUCTION OF BANKS IN NIGERIA.
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Date
2011-06
Authors
AMUSHI, NNAMANI-NWANKWO
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Abstract
It is generally accepted that banks are inevitable component of an economic system and
that the capital of a bank is the foundation on which it stands. This foundation has continued to
witness dynamic changes leading to crisis that often threaten to rock the foundation of our
banking system. At each of the point the crisis the depositors had always turned to the state and
the central Bank of Nigeria (CBN) for help. Unfortunately the two have no coordinated
resolution scheme that would punish those responsible for depositors and other creditor’s woes
and at the same time save money for the state or taxpayer from the cost of resolution of the crisis.
It has therefore become necessary to examine the legal perceptive to rehabilitation of this basic
aspect of our banks and the banking system particularly the challenges faced by the institutions
responsible for bank’s capital reconstruction during and after crisis
The major player in resolution of banking crisis –the CBN has just two major tools for
crisis management namely the power of liquidation and the power of lender of last resort. The
exercise of power of liquidation has a direct negative impact on the depositors’ confidence
especially where depositors have lost money to a failing or failed bank.
The power of lender of last resort guarantees that no depositors lose money to failing or
failed bank but it leaves a lot of legal and moral issues unresolved. The first issue is that the cost
of repaying the depositor fund is borne by the tax payers’ money instead of the bank
management that are often responsible for mismanagement of the bank’s capital that lead to the
crisis.
Secondly the criminal legal system often does not punish the perpetrators of fraud and
mismanagement leading to either liquidation or spending of tax payers’ money. The result is that
instead of strengthening the corporate governance culture in the banks in the system, the lender
of last resort tends to encourage carelessness frauds and mismanagement in the banking system.
This therefore calls for extension of the roles of the regulatory institutions in the system
from mere intervention to active participation in fashioning and implementing lasting capital
reconstruction measures in the banks. The research proceeded on the assumption that banking
crisis will continue to happen, there will continue to be need for resolution scheme that will
reconstruct the bank’s capital and beef up liquidity else panic will ensue in the system which
may lead to total collapse of the banking system.
Therefore there is the need to harmonize the legal procedures and institutions necessary
for capital reconstruction in the country.
Description
MASTER OF LAWS (LL.M) THESIS
FACULTY OF LAW
AHMADU BELLO UNIVERSITY, ZARIA
JUNE 2011
Keywords
LEGAL PERSPECTIVE,, CAPITAL,, RECONSTRUCTION,, BANKS,, NIGERIA.