THE BANKING REGULATION HOW CBN AND NDIC REGULATES BANKS IN NIGERIA

CHAPTER ONE
INTRODUCTION
1.0    BACKGROUND OF THE STUDY
In the content of the financial system, the term “Banking Regulation” appears relevant to the banking sub-system, it refer to as a body of specific rules or agree behavior either imposed by government or external agency or self imposed by some government or external agency or self imposed by the explicit or implied agreement within the industry that constrains the activities and business operations on the instructions or the industry to achieve a defined objectives and act fluently.
It delimits the scope of financial regulation, which encompasses regulation of financial markets. Consequently the subject of this discussion is especially restricted to regulations affecting banks, the resent introduction of universal banking frame work not withstanding indeed since the introduction, except for the guideline an universal banking, universal regulations have not witnessed service charges. The regulation of the banking industry in Nigeria dates back to 1952, when the first banking law was promulgated as an attempt to sanitize the industry, which before then had been without any mercifully form of regulation, a factor that was responsible for the mass collapse of many indigenous banks which sprang up between 1929 and 1951. Since 1952 a good number of regulations have been introduced as a way of enhancing the sanity of the system.
Prior to the establishment of Central Bank of Nigeria by the CBN act of 1958, there existed a body institution known as the British Colonial government, was intended to serve as central bank for the Anglophone west Africa. Thus, the board was charged with the West African pound which serves as the legal tender currency in Ghana, Nigeria, Sierra Lone and the Gambia. The board nevertheless suffered a number of weakness for which it was criticized. The weaknesses are as follows:
1.    The board was involved in physical distribution of currency from one point to the other.
2.    Its activities were considered discriminatory against indigenous West African industrialists.
3.    The board lacked the necessary apparatus with which to control money.      
These weaknesses led to the widespread agitation for the establishment of an indigenous central bank in Nigeria.   
Three major commissions were set up by the British Colonial Government the 1950’s to look into the possibilities of establishing a central bank in Nigeria.
The commissions were:
i.    J.L fisher’s commission (1952)
ii.    I.B.D. commission (1953) and
iii.    J.B Loyne’s  commission (1957).
The first two commission (J.L fisher and I.B.R.D), concluded that Nigeria was not wiped enough for the establishment of a central bank. It was his view that led to the reregulation of the C.B.N Act of 1958.
Empowering the Central Bank of Nigeria in the discharge of its duties as the apex regulatory institution, ensuring the efficiency and effectiveness of the universal banking operating in the country. Apart from banking laws, the government through the C.B.N uses several other means which also assisted in regulating the activities of universal banks operating in the country. The C.B.N uses several other means in regulating the activities of other financial institution like insurance companies, finance houses and the Nigeria stock exchange e.t.c. the principal regulatory bodies are Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Commission (N.D.I.C) and National Insurance Supervisory Board (N.I.S.B), but we are going to limit our study on the C.B.N and N.D.I.C.
National Deposit Insurance Commission (NDIC) is an agent of the Federal Government established by decree No.22 of 15th June     1988 and commends operation in March 1989. Its main purpose is to insure the deposit liabilities of licensed banks and other deposit taking institution in Nigeria. The reasons for banking regulation, banks regulated for the following reason:
1.    To build up trust and confidence in the banking system.
2.    To ensure orderly growth of the country (Nigeria).
3.    To reduce risks taken by banks.    
4.    To ensure solvency and livability by banks in the economic growth and development of the nation.
5.    To prevent a re-occurrence of mass bank failure to the pre 1952, free for all banking era.
6.    To achieve a variety of other ends.

1.1    STATEMENT OF THE STUDY
The main problem of this research work is an how, the C.B.N and N.D.I.C will regulate banking in Nigeria, the likely obstacles that could hinder the concerned study are stated below.
1.    What are the objectives of the banking regulation to the Nigeria economy?
2.    What are the effects of the banking regulations to the economy (Nigeria)?
3.    What and how C.B.N regulates?
4.    What are the effects of regulations and banking industry?
5.    How NDIC does regulates banks.
6.    What are the other regulatory bodies?
The above mentioned points are the problems associated with the concerned study and it is a problem, because without attempting to provide a solution to it, it will hinder the write up of this study.

1.2    AIM AND OBJECTIVES
The aim of this study is to examine the banking regulation, how CBN and NDIC regulates banks in Nigeria and for the purpose of this study, the following objectives will be considered:
1.    The objective of the banking regulation to the Nigeria economy.
2.    The effect of the banking regulation to the economy.
3.    What and how CBN regulates.
4.    The effects of CBN regulations on banking industry.
5.    How NDIC regulate bodies.

1.3    RESEARCH QUESTIONS

The purpose of these research questions is to arrive at the likely solution to the research problems and that will be achieved by asking the following questions:
1.    In what ways will the CBN be able to control and regulate banking in the country?
2.    What are the ways in which the economy will benefit from, how CBN and NDIC regulate banks in Nigeria?
3.    How the NDIC does insured banks?
4.    Are financial institution insured by NDIC?
5.    How does the NDIC protect bank depositors against loss?
The questions are necessary as it will enable us to arrive at a possible solution to the various research problems to be encountered.

1.4     RESEARCH HYPOTHESIS
The hypotheses are of two types namely: Null Hypothesis (Ho) and Alternative Hypothesis (Hi)
i.    H1: There is a relationship that exists between the Banking regulation and CBN.
ii.    H0: There is no relationship that exists between Banking regulation and CBN.
iii.    H1: There is a relationship that exists between the CBN and NDIC.
iv.    H0: There is no a relationship that exists between the CBN and NDIC.

1.5    SCOPE OF THE STUDY
This research project is limited to banking regulation, how CBN and NDIC regulate banks in Nigeria. It also deals with other financial institutions, which include insurance company, financial houses and Nigeria stock exchange etc. The other regulatory institutions include: National Insurance Supervisory Board and the Nigeria expert import bank etc.

1.6    LIMITATION OF THE STUDY
These are some limitation that will be affecting this research work, in which they are stated below:
1.    Disclosure of information.
2.    Lack of self regulation.
3.    on low to control legal lending.
4.    How to restrict the numbers of new indigenous banks springing up in Nigeria.
These are the limitation that will be affecting this research work.

1.7    DEFINITION OF TERMS
i    CBN:    Central Bank of Nigeria.
ii    NDIC: Nigeria Deposit Insurance Cooperation.
iii    IBRD: International Bank for Re-construction Development (also known as World Bank).