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Risk management and regulatory failures in banking: Reflections on the current banking crisis in Nigeria

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Abstract

Nigerians woke up on 14 August 2009 to the announcement by the new governor of the Central Bank sacking the chief executive officers and management of five banks. Three other banks similarly had their management removed at the conclusion of the special investigation into the banking system by the regulatory authorities. For effects, the dismissed bank chiefs were dragged before the Economic and Financial Crimes Commission and the courts to account for their stewardship. What went wrong? How did banks touted as being rock-solid few months earlier by the same Central Bank come close to the precipice of failure? This article analyzes some of the salient microeconomic issues. It highlights the regulatory and risk management failures in the banking system and the urgent need for a fundamental reappraisal of the existing framework for bank regulation.

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Reference and Notes

  • Section 35(2) (c) and (d) of the Act provide that the Governor [of the CBN] may by an order in writing under subsection (1) of this section remove for reasons to be recorded in writing with effect from such date as may be set out in the order, any manager or officer of the bank notwithstanding anything in any written law or any limitation contained in the memorandum or articles of association of the bank; … remove from office with effect from such date as may be set out in the order any director of the bank, or appoint any person or persons as director or directors of the bank.

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Acknowledgements

Thanks are due to Professor John Turner (my dissertation advisor) and the Economic and Financial Institutions Research group (EFIRG) for funding support. All remaining errors are mine.

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Authors and Affiliations

  1. Queen's Management School, Queen's University, Belfast, BT7 1NN, UK

    Thomas Agbonkpolor

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  1. Thomas Agbonkpolor
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Correspondence to Thomas Agbonkpolor.

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This is an abridged but updated version of the law and finance portion of my PhD dissertation.

1holds an MSc degree in economics, finance and banking from Cardiff Business School, Cardiff University and completed his PhD in Finance at Queen's University, Belfast in June 2009. His thesis is titled ‘Banking in a developing economy: Issues in corporate control, regulation and financial stability in Nigeria’. Before academia, Thomas trained, qualified and practised as a professional accountant in Nigeria and was Director of Taxation services at PKF Pannell Kerr Forster (chartered accountants). His research interests are in modelling banks behaviour, financial regulation, corporate finance and governance.

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Agbonkpolor, T. Risk management and regulatory failures in banking: Reflections on the current banking crisis in Nigeria. J Bank Regul 11, 146–155 (2010). https://doi.org/10.1057/jbr.2010.5

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