THE IMPACT OF MONETARY POLICY ON BANKING INDUSTRY (A CASE STUDY OF SOME SELECTED BANKS FROM 1984-2004)

CHAPTER ONE

INTRODUCTION

1.1            BACKGROUND OF STUDY

It is a trite fact that the central bank of Nigeria (CBN) was established by the federal government of Nigeria to produce the Nigerian currency enact and execute monetary policy to promote monetary stability and a sound financial system in Nigeria.  To regulate the banking sector through its monetary policies and laws which every banks must adhere to before its operations. The central banks of Nigeria carries out this role objective on behalf o the federal government through a process stipulated in the central bank of Nigeria decree No 24 1991 and the banks and other financial institution decree No 25 of 1991

Prior to the enactment of the monetary policy the governor of the central bank of Nigeria make proposals to the president of the federal republic of Nigeria who has the right and power to accept or amend where necessary such proposal. Thus once the proposal are authorized by the president it becomes a law, which the central bank of   Nigeria is obligated to implement. The two enabling laws stated above empowers the central banks of Nigeria to direct the carry out other financial institutions to carry out certain duties in pursuit of the approval monetary policy.  Usually the monetary policy to be pursued is detailed out in the from of guidelines to all banks.  The guidelines are generally operated with in a fiscal years but the element could be amended in the cause of the year.  Penalties are normally prescribed for non-compliance with specific provision in the guidelines.

The banking industrial plays a vital role in the development of the economy of any nation.  Be that as it may among the industrial sectors in the country today one can say that the banking sector arouses the most visible and fastest growing sector in the Nigeria economy.

Bank role in aiding the acceleration and expansion of the economic development of any nation particularly in serving, as an engendering in developing countries cannot be over emphasized.

Articulating on the importance of its role (Fabanmi JO 1989) States “institutions which affects the body politic of a nation must be subjected to adequate and rational regulation and supervision otherwise a collapse of the entire system will be noticed due to unmanaged unattended and over regulated colossus”

The banking sector has become one of the critical sector and commanding heights of the economy use to effective participation in the direct of economic growth and transformation and such sensitive issues as the of unemployment inflation price stability or any other macroeconomic goal which directly affects the lives of our people. Gardner (1984p53) pointed out clearly that:

In virtually all developed market economy the banking industry is more heavily regulated than other commercial and industrial sectors” banking is regulated from cradle to grave he conduced.