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Regulation is a form of intervention in any activity, ranging from explicit legal control, to peer group control. It also a restriction placed by an authority with intention of achieving a particular goal. Basically, there are major theories of regulation. Prof. Uche (2008) went on to categorize it into two:

(1)     Public Interest theory; it states that regulation is      essentially used to correct inequitable market prices. For any regulation to sustain and strive well, it must have the support from the regulatees

(2)     Capture theory of regulation; though regulation may be well set out the interest of the people, but it will then be captured by the regulatees. The industries are organized, and have all the necessary resources to influence the    policy of the government and even that of the public.         Therefore, the regulation which set out to serve the interest of the general public, may end up serving the interest of the regulates.

Although, the researcher is not going into details on argument that arises among scholars on the issue of regulation. The debate is normally “on whose interest do regulation protect, is it the general public or the regulates?

Conversely, due to the nature of business bank’s operates and the prominent role they play in any given economy, Odita (2006:1) stated that it ranges from the traditional role of custodian of money; the government therefore, need to give the depositors of fund and other potential/intending investors the confidence in the affairs of financial institution (Banking Industry). This gave rise for the industry to be closely monitored, and directed as accordingly by the regulatory authorities. The objective of supervision is to promote the safety and soundness of financial institutions through on-going evaluation and monitoring, including the assessment of risk management system, financial condition and compliance with laws and regulations.

Invariably, in Nigeria financial sector, there are three principal legislations that provide the legislative framework for the regulation of banks in Nigeria. These are; The Central Bank of Nigeria Act (CBNA), The Bank and other financial Institution Act (BOFIA) and The Nigeria Deposit Insurance Corporation Act (NDICA). Banking regulation, as it is also obtainable in other countries in the globe, is concerned primarily with the protection of depositors and the stability of financial system. The prudential guidelines to banks also comprise among other measures for supervision of banks liquidity, capital adequacy and create exposure and concentrations.

However, banking regulations is a topical issue which covers a wide range of operation of banks in Nigeria, several banking regulations have been put in place, dating from 1952 till date. These regulations are contained in the form of ordinances. The introduction of banking ordinance in 1952, which triggered a rapid growth in the industry with the growth, also witness a disappointment where many banks there after went into distress. Other ordinances that followed the 1952 bank of ordinance are: (a) The Banking Act of 1958; (b) The Central Bank of Nigeria Act of 1958; which was later amended in 1979; (c) the Central Bank of Nigeria decree of 1991, (d) Banks and other financial institutions Decree of 1991 and other Central Banks’ of Nigeria monetary guidelines published at the commencement of every fiscal year.

Although, in the amidst of all these banking regulations, the Nigeria Banking industry did not cease to witness banking instability and banks’ distress Dr. Sani (2003:4) stated that between 1947 – 1952 twenty one (21) banks failed, between 1953-1945 also seventeen (17) banks also failed, in the mid 1990, thirty four (34) bank also failed too. In Nigeria, the most recent one is that of 2006, where fourteen (14) banks’ licenses were revolved on 16th January, 2006, by the   Central Bank of Nigeria prior for the banks inability to meet up the twenty-five billion naira capital base. Invariably, the root-causes of banking failures or distresses, ranges from liquidity crises, poor lending practices and other poor risk management practices to fraud.


Banking distress occurs when a bank or some banks in the system experience illiquidity or insolvency resulting in a situation where depositors fear the loss of their deposits and a consequent break down of contractual obligations. While a bank is said to be illiquid, when it could no longer meets its liabilities as they mature for payment, it is said to be insolvent, when the value of its realize liabilities. These could lead to banks’ failure, as depositors lose confidence in the system and seek to avoid capital loss. The uncertainty generated as a result of distress in banking institutions, if left unchecked, often raises real interest rates, which creates high cost of transaction and disrupts the payment mechanism with the attendant economic consequence.

Still, the extent and depth of banking distress can be generalized nature and systematic. Generalized nature distress exists when its occurrence is spreading fast and cuts across in terms of the ratio of the industry.  While a problem may become systematic and serious concern to the relevant supervision/regulatory authorities when its prevalence and contagious effect becomes endemic and pose threats to  the stability of entire system, savings mobilization, financial intermediation process and depositors’ confidence.

Besides, regulations should never in any form pose threat to an industry; rather, it should help in streaming the activities of the said industry. The disagreement among scholars many often culminated into a serious debate. This debate is on conflict interest of regulation. This is whether the regulation protect that it is the interest of the public that the regulations are been protected, whom then do bank give support to these regulations, since general interest and profitability tend to run in the opposite direction. Above all, why is it that  the price of regulated products are too high? Besides, under normal situation, if the regulation is on the side of the public, the prices of the regulated products should be cheap.

On the other hand, if you are of the view that the regulations protect the interests of the regulatees, then, why is that many banks went into distress in the   past years? Emphatically, to unmask the root-causes of this situation, this is a big problem and challenge to this research work.


It will be pertinent that this research should have a layout of set objectives to guide the researcher in the cause of his work. Below are these objectives:

  1. To evaluate the banking regulations in Nigeria during the period under review.
  2. To also, evaluate the operations of Nigerian financial sector within the limits of available data.
  • To also ascertain the client (customers) perception about the nature, extent and causes of distress as well as the assessment of the roles of the regulatory/supervisory agencies.
  1. To appraise the banking regulations, in-relation to financial sector diseases.



Below, are the following hypotheses that are therefore formulated by researcher for test in this research work?

  1. H0:           Unpaid loans/overdraft granted to individual, group of  individuals   corporate bodies and government agencies do   not contribute to bank distress.

Hi:             Unpaid loans/overdraft granted to individual, group of in  individuals    corporate bodies and government agencies do  contribute to bank distress.

  1. Ho:         Fraudulent practices and reckless life style of some   management staff of various distressed banks was not   responsible for banks’ failure in    Nigeria

Hi:     Fraudulent practices and reckless life style of some  management staff of various distressed banks was also    responsible for banks’ failure in    Nigeria.

  1. Ho:    Withdrawal of public fund from the banks and the use of   stabilization of securities, and special treasury bill to   control excess liquidity in the system, did not trigger bank

Hi:             Withdrawal of public fund from the banks and the use of   stabilization of securities, and special treasury bills to    control excess liquidity in the system,   Triggered bank   distress.


       The aim of every research work is to find out, evaluate and make necessary recommendation(s) on what has been a contending issue in the society or any given environment. The researcher, therefore, employ the following research questions to enable him achieve the aforementioned set objectives of this research work.

  1. What is the regulatory approach adopted by government in       administering banking jurisdiction/policies to the          banking      industry?
  2. What is the level of awareness of banking regulations/deregulatory reforms in the banking?
  3. Does government inconsistency in policies, has any negative    impact on the Nigerian financial sector?
  4. Does proliferation of banks during SAP era, has any negative    effect in the banking industry?



The significance of the study is to enable any party who is wholly interested and also some groups or governmental bodies or agencies to have an in-depth knowledge of banking regulations with respect to banking distress. This is a vital issue that usually raises a lot of comments and concern by the general public.

Besides, due to the nature of business and roles banks do play, people will be interested in knowing whether regulations actually assist banks in any form or do regulations destabilize their work. The litany of distressed banks in Nigeria, and major causes of such banks will be a reference guide to other existing banks in the country.

Also, the Nigerian government under the tutelage of Central Bank of Nigeria will also know that stringent policies, regulations have never or will ever do Nigerian banks a favour in any way.

Generally, this research work will be an immeasurable aid to the future researchers and any individual who is interested in banking regulations will see it as a reference point.


        It is pertinent to note that, this study is restricted in scope, to a survey of the view, opinion of the following groups: