1.0 Introduction
Banking reforms have been an on going phenomenon around the world right from the
1980s, but it is more intensified in recent time because of the impact of globalisation which is precipitated by continuous integration of the world market and economies. Banking reforms involve several elements that are unique to each country based on historical, economic and institutional imperatives. In Nigeria, the reforms in the banking sector preceded against the backdrop of banking crisis due to highly undercapitalization deposit taking banks; weakness in the regulatory and supervisory framework; weak management practices; and the tolerance of deficiencies in the corporate governance behaviour of banks (Uchendu, 2005). Banking
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The banking sector in emerging economies has witnessed major changes to compete, attract international investment and increase capital market growth. Banking crisis usually starts with inability of the bank to meet its financial obligations to its stakeholders. This, in most cases, precipitates runs on banks, the banks and their customers engage in massive credit recalls and withdrawals which sometimes necessitate Central Bank liquidity support to the affected banks. Some terminal intervention mechanisms may occur in the form of consolidation (mergers and acquisitions), recapitalization, use of bridge banks, establishment of asset management companies to assume control and recovery of bank assets, and outright liquidation of non redeemable banks. Bank consolidation, which is at the core of most banking system reform programmes, occurs, some of the time, independent of any banking crisis. Irrespective of the cause, however, bank consolidation is implemented to strengthen the banking system, embrace globalization, improve healthy competition, exploit economies of scale, adopt advanced technologies, raise efficiency and improve profitability(eseoghene,2010). Ultimately, the goal is to strengthen the intermediation role of banks and to ensure that they are able to perform
The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions
Have you ever wondered what it means to be human? Or what it means to dehumanize one another? As humans, we have the ability to think and use our brains. We are subject to an evolving education and to require an education. When someone is deprived of these human qualities, they are dehumanized. Everyone strives to live in an environment that enables them to learn, discuss, and act similarly.
Managing a Bank crisis is one of the most difficult tasks of a regulator. Banks and financial institutions had to take counter measures in order to survive and remain competitive. Efficient regulatory framework identifies the benefits of a sustainable financial system. It helps the organizations to work efficiently, objectively and the country will have transparent markets. Regulatory system is open minded to the needs of investors when implementing directions to curtail regulations for certain types investment related products and services. It also maintains accountability with respect to market participants and policy makers.
An unregulated banking financial institution might be fraud with unmanageable risks for the purpose of maximizing its potential return. In such a situation, the banking financial institutions might find itself in a serious financial distress instead of improving its financial health. Consequently, not only the depositors but also the shareholders will be deprived of getting back their money from the bank. The deterioration of loan quality also affects the intermediative efficiency of the financial institutions and thus the economic growth process of the country. This the reason for which the banking financial institutions are being regulated in all countries. The banking financial institutions are also the most regulated among all types of financial institutions in all countries, because of their substantial role in payment mechanism (in addition to protect the loan portfolio from decaying).
The recent financial crisis has a huge impact on systemic Important Financial Institutions; it’s distressing effect can be felt in almost every business area and process of a bank. A fairly large literature investigates the impact of financial crisis on large, complex and interconnected banks. The great recession did affect banks in different ways, depending on the funding capability of each bank. Kapan and Minoiu (2013) find that banks that were ex ante more dependent on market funding and had lower structural liquidity reduced supply of credit more than other banks during crisis. The ability of banks to generate interest income during the financial crisis was hampered because there was a vast reduction in bank lending to individuals and
Intervention by the central bank is warranted to avoid welfare loss for the institution’s stakeholders since it may be that due to access to supervisory information, the authorities are in a better position to evaluate the financial position of a bank rather than the inter-bank market. The other situation in which the central bank may be the LOLR is when the stability of the entire financial system may be threatened following the failure of a solvent bank. This widespread financial instability may put to risk the ability of the financial system to carry out its primary functions.
These banks should ideally be divested of any sort of commercial interest, and must act in the best interest of its nation’s economic stability. A lot of meaning is carried out in being identified as ‘independent’ authority, where the bank possess powers to take its own decisions, approve its own legislature, follow its own policies and offer stability to the nation’s economy.
The crises showed just how interconnected the banking system is throughout the world. The Lehman Brothers bank closure in 2008 created a major financial crisis around the world due to its influence (The Economist, 2013). It took the government’s massive bail outs to prevent total collapse of the financial system and to some extent economic collapse of the country. This government action set a precedent and to some sent a message that the reckless action by the banks in the name of profit is fine because they now have a safety net. It is a good example of how the collapse of a big financial institution that has national and global influence can affect several interrelated firms to the detriment of the country’s economic interests. This paper therefore, examines the notion “too big to fail” in relation to banking.
In this essay I will be addressing the “Too Big To Fail” (TBTF) problem in the current banking system. I will be discussing the risks associated with this policy, and the real problems behind it. I will then examine some solutions that have been proposed to solve the “too big to fail” problem. The policy ‘too big to fail’ refers to the idea that a bank has become so large that its failure could cause a disastrous effect to the rest of the economy, and so the government will provide assistance, in the form of perhaps a bailout/oversee a merger, to prevent this from happening. This is to protect the creditors and allow the bank to continue operating. If a bank does fail then this could cause a domino effect throughout
The papers start off with giving an explanation of the Economic theory. It goes on to make the point that the theory really has not come yet to agree on the insinuations of augmented rivalry for banking reliability, and, more precisely, bank capital ratios. The author goes on to bring in an example, which makes the suggestion that increased competition reduces banks' soundness. The document explores the chief mechanisms that are talked about in the literature. The literature makes the point of mentioning that the bank managers have an inducement to take on extreme jeopardies to profit stockholders at the expenditure of investors. The document also brings in another perspective that had a contrast from what Camino and Matutes (2002) mentioned. Both of these made the point prove that
BBB Bank plc (hereby mentioned as the ‘Bank’), has a great power in the market due to the large selection of banking services and products being offered. The Bank current approach seems to be focused on profit making, with wrong selling techniques which lead to miss-selling of endowment policies. It is also being noted that the bank has invested customer’s money in derivatives which had made a loss. Apart from that, it is being stated that a whistleblower accused a member of the board of acting unethically and trying to hide the true picture of the bank’s financials.
According to Deconinck and Swinnen (2015, 85-86), from the 1960s to 1980s and the early 1990s, the
The second problem is the defects in corporate governance of Japanese banks. First, because of the structure of bank ownership, few shareholders own the majority of the total shares, most shareholders have modest control over the management of banks. Second, shareholders lack of incentive so it is difficult for them to against managements’ decisions. Third, the internal and external audit was very limited.
This chapter is about the background of 2007-2008 financial crisis. The 2007-2008 financial crisis has a huge impact on US banking system and how the banks operate and how they are regulated after the financial turmoil. This financial crisis started with difficulty of rolling over asset backed commercial papers in the summer of 2007 due to uncertainty on the liquidity of mortgage backed securities and questions about the soundness of banks and non-bank financial institutes when interest rate continued to go up at a faster pace since 2004. In March 2008 the second wave of liquidity loss occurred after US government decided to bailout Bear Stearns and some commercial banks, then other financial institutions took it as a warning of financial difficulty of their peers. In the meantime banks started hoarding cash and reserve instead of lending out to fellow banks and corporations. The third wave of credit crunch which eventually brought down US financial system and spread over the globe was Lehman Brother’s bankruptcy in August 2008. Many major commercial banks in US held structured products and commercial papers of Lehman Brother, as a result, they suffered a great loss as Lehman Brother went into insolvency. This panic of bank insolvency caused loss of liquidity in both commercial paper market and inter-bank market. Still banks were reluctant to turn to US government or Federal Reserve as this kind of action might indicate delicacy of
Corporate governance is a key element in improving the economic efficiency of a bank. It should be fair and transparent to its customers and stakeholders in all its transactions. A sound corporate governance also contributes to the protection of depositors of the bank. It also involves the manner in which the business and affairs of banks are governed by their board of directors and senior management, which reflects how they function. This paper is descriptive in nature conferred about the composition of the board of directors in the Public sector commercial banks. The finding of this paper exemplify that the Public sector commercial banks have ‘Fit and Proper’ board in their respective banks.