The Legal Perspective To Capital Reconstruction Of Banks In Nigeria

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The Legal Perspective To Capital Reconstruction Of Banks In Nigeria


It is generally accepted that banks are inevitable component of an economic system and that the capital of a bank is the foundation on which it stands. This foundation has continued to witness dynamic changes leading to crisis that often threaten to rock the foundation of our banking system. At each of the point the crisis the depositors had always turned to the state and the central Bank of Nigeria (CBN) for help.

Unfortunately the two have no coordinated resolution scheme that would punish those responsible for depositors and other creditor’s woes and at the same time save money for the state or taxpayer from the cost of resolution of the crisis. It has therefore become necessary to examine the legal perceptive to rehabilitation of this basic aspect of our banks and the banking system particularly the challenges faced by the institutions responsible for bank’s capital reconstruction during and after crisis The major player in resolution of banking crisis –the CBN has just two major tools for crisis management namely the power of liquidation and the power of lender of last resort.

The exercise of power of liquidation has a direct negative impact on the depositors’ confidence especially where depositors have lost money to a failing or failed bank. The power of lender of last resort guarantees that no depositors lose money to failing or failed bank but it leaves a lot of legal and moral issues unresolved. The first issue is that the cost of repaying the depositor fund is borne by the tax payers’ money instead of the bank management that are often responsible for mismanagement of the bank’s capital that lead to the crisis. Secondly the criminal legal system often does not punish the perpetrators of fraud and mismanagement leading to either liquidation or spending of tax payers’ money. The result is that instead of strengthening the corporate governance culture in the banks in the system, the lender of last resort tends to encourage carelessness frauds and mismanagement in the banking system.

This therefore calls for extension of the roles of the regulatory institutions in the system from mere intervention to active participation in fashioning and implementing lasting capital reconstruction measures in the banks. The research proceeded on the assumption that banking crisis will continue to happen, there will continue to be need for resolution scheme that will reconstruct the bank’s capital and beef up liquidity else panic will ensue in the system which may lead to total collapse of the banking system. Therefore there is the need to harmonize the legal procedures and institutions necessary for capital reconstruction in the country.

The Legal Perspective To Capital Reconstruction Of Banks In Nigeria

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