a) Acceso al territorio comunitario

The pivotal role played in today’s modern economies by financial institutions cannot by overlooked. Banks as major players in the financial system are the most regulated institutions because they are saddled with the responsibilities of running the payment systems of countries and the management of investors’ money, in addition to allocating financial capital to different sectors of the economy, and the implementation of monetary policies (Pilbeam, 2010). More so, the explosive nature of financial markets, the specificity of banks, increased competition and diversification further exposes banks to risk and challenges. Traditionally, governments intervene to regulate and supervise the operations and activities of banks because of the financial intermediation roles they play and their economic importance, but in recent times government intervention has been rationalised on the grounds of “market failure (for instance the Global Financial Crisis).” Consequently, Pilbeam (2010) opined that a market devoid of some form of regulation would produce a suboptimal outcome.

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According to Heffernan (2005) and Pilbeam (2010), financial institutions are subjected to regulation and supervision for a variety of reasons:

 Investor/Consumer Protection: Financial products offered to investors do not explicitly show the risks associated. Insiders in the form of directors and managers are privy to certain information, which they can use to their advantage, and to the detriment of outsiders (investors and consumers).

Hence, the onus is on the government to ensure that financial institutions make available adequate information. For this reason, various countries have adopted regulations designed to prohibit insider trading, and regulators have imposed financial information disclosure requirements.

 Externalities: Because banks are significant for resource allocation and economic growth: the failure or collapse of a banking institution may impinge on the stability of the entire financial system. Governments, therefore, intervene through systemic supervision to ensure financial stability and mitigate against systemic failure.

 Illegal Activities: Effective regulation and supervision can subdue the criminal activity of agents (directors, managers, and staff) in the forms fraud, tax evasion and money laundering.

 Market Power: Financial institutions may exert too much power especially in markets where competition is absent. For instance, the pricing of financial products and services may be grossly unfair because of monopolistic power held by a few large institutions. Policies aimed at protecting consumers against monopolistic exploitation are therefore introduced to encourage competition and price-setting.

Although, the rationale for banking regulation and supervision have been well documented. Economic views can only justify bank regulation and supervision on the uncertainties that exist in financial systems and financial instabilities (Llewellyn, 1999). Lindgren, Gillian, & Matthew (1996) opined that in recent years, bank failures have become more common, systemic in nature, and expensive: therefore questioning the justification of regulation and supervision. Proponents of regulation argue that the increasing vulnerabilities experienced in financial markets and especially banking institutions make a case for increased effective regulation and supervision. While, the societal viewpoint argues that regulation and supervision further imposes costs on the taxpayer, in addition to the moral hazard problems it creates ( Barth et al., 2006). More so, Benston & Kaufman (1996) suggested that arguments

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mostly used to buttress the need for the regulation of banks are not supported both theory and empirical evidence. While also stating that banks should only be prudentially regulated to scale down the negative externalities resulting from the deposit insurance schemes imposed by governments.

Conversely, Drage, Mann, & Michael (1998) opined that effective regulation and supervision is necessary for the development of banking systems and so blamed the Asian banking crisis on poor regulation. In agreement, Llewellyn (1999) suggested that weak management, bad incentive structures and control systems within banks, alongside poor regulation, monitoring and supervision are elements that emerge in banking crises. Also, Jalilian, Kirkpatrick, & Parker (2007) argued that when regulation is imposed in a bid to limit banking activities, the efficiency and the conduct of banking business will be gravely affected. This in turn could result in banks investing in risky activities that evade regulation (regulatory arbitrage), therefore, negatively affecting financial stability and economic growth for which it is intended.

The submissions agree that regulation and supervision of banking institutions is important, however weak regulation has been blamed for the inability to manage banking risk and protect banks from failing. This position is reinforced in recent banking literature as various academics and market players have suggested that the recent global financial crisis occurred due to the failure of regulation and supervisors (Ayadi, Naceur, Casu, & Quinn, 2016, Cihak, Demirguc-Kunt, Martinez, Soledad, 2013; Merrouche & Nier, 2014).

In spite of the criticisms ascribed to weak international and national regulation and supervision due to the event of the global financial crisis, effective financial regulation and supervision are considered integral to financial stability as a well-functioning regulatory, supervisory framework has the potential of minimising moral hazard and discouraging excessive risk-taking (Ayadi, 2016). It is a result of the above that this study examines the regulatory and supervisory initiatives of Nigerian regulators and to what extent they have instituted a well-functioning regulatory and supervisory framework in the Nigerian banking sector.

As highlighted in the first two chapters of this thesis, the Nigerian banking reforms of 2005 and 2009 aimed at improving the general efficiency, performance (profitability) and stability of Nigerian DMBs. On that account, the reforms paid particular attention to recapitalisation with the view that the efficiency, performance and stability of DMBs will be guaranteed

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when they have adequate capital. Therefore, it can be suggested that Nigerian banking reforms were more of capital regulations.