- Background of Study
Central Bank is a bank established through the Act of Parliament. It is the bank that acts as a banker to Federal Government and stands also as a guideline to the entire banking system of a country. According to Umole (1986), it is a medium through which government policies are routed to the financial sector of the economy. Its (Central Bank) functions include the promotion of monetary stability and a sound financial system in Nigeria, (section 27 CBN Decree No. 24, 1999). It is actualized objectically by formulating and executing monetary policies.
Central bank with its authority is charged with the responsibility of regulating/supervising the banking industry. It regulates and control the activities of banks through deliberate manipulations of money supply.
Central bank’s role includes;
- Conduct of monetary policy with the objective achieving macroeconomic stability and other objectives of government
- Promotion and development of the payment mechanism
- Development of the financial system
- The continuality of off-fit surveillance and on-sit field examination of backs to the safety and soundness of the system and compliance with the relevant laws and regulation etc.
However, since the trade of the apex bank in banking industry is money, the supervision and firm control of the activities of commercial banks, though the manipulation of various components of money are made available to banks. The goal of monetary policy and approach which the CBN adopts compliance and attention should be given to them. The CBN is also responsible for the issuing of licenses and appointment of directors to the banks, monitors the activities such as management, advertisement, profits and the account of banks.
In administering or discharging its mandate, the CBN collaborate with other supervisory bodies in particular NDIC. CBN/NDIC collaboration covers such areas as the sharing of information, joint examination of banks, designing and implementing failure revolution measures etc. This examination is aimed at achieving monetary stability by ensuring that banks comply with the monetary policies of the government. In other to regulate the activities of banks, the CBN applies three methods of control which are:-
- Monetary and credit control
- Prudential control and
- Supervisory control (Examination and Supervision).
Monetary and credit control appears to be in use must partly because of the ability of monetary authorities to control money supply.
- STATEMENT OF THE PROBLEM
This study focuses on the impact of the regulatory policies of the CBN on commercial banks’ operation in Nigeria. In carrying out its obligation, the CBN employs the tools of monetary policy for the purpose of regulating money supply at any given point in time. In this, there might be some problems which are encountered in carrying out this task. We will be finding out whether there is any relationship between money supply and the tools of monetary policy. For the effectiveness of CBN, we will look at its management of the monetary policy and how it affect the banks, the Nigeria Economy and whether the monetary policy instruments has a greater effect on money supply in the Nigeria economy.
- OBJECTIVES OF THE STUDY
This study is to examine empirically the impact of the use of regulating policies (monetary polices) by the CBN to control and monitor the activities of commercial banks. Thus, these objective are:-
- To examine CBN’s money mechanism using the monetary policy guideline during the period 1990-1998.
- To determine the relationship between the expected monetary target and actual monetary targets achieved during the period 1990-1998.
- To determine the effectiveness or otherwise of the administration machinery for the executive of monetary policy in Nigeria.
- To suggest appropriate remedies for future improvement when necessary.
- RESEARCH QUESTIONS
- Is there any relationship between money supply and the role of monetary policy?
- How has the management of the monetary policy affected commercial banks operation in Nigeria?