In the last unit, we
have examined fully the functions of financial institutions. Now we have to
look at the
control of financial
institutions in this unit. To ensure that good standards are maintained by the
various
operators within the
financial system to check any excesses of these operators, and ensure a well
functioning
and safety of the
system, certain institutions are created by the Federal Government to regulate
and oversee
their activities.
These institutions are the regulatory and supervisory authorities. The specific
roles of these
authorities will be
discussed in this unit.
Central Bank of Nigeria
The Central Bank of
Nigeria is the principal regulator and supervisor of the entire Nigerian
Financial Institutions.
The Central Bank of
Nigeria stands at the apex of the banking system. It licenses, supervises and
regulates the banks
within the system in order to pursue an effective monetary policy and to
control credit in
the economy, the
Central Bank uses the following weapons:
* Open Market
Operations
* The Bank Rate
* Moral Suasion
* Special Directives
The CBN is charged
with the responsibility for promoting a sound financial structure in Nigeria.
To this end,
the Bank acts as a
banker to and supervisor of banks and other financial institutions by providing
the
following:
* Bankers’ Clearance
* Banks’ Examination
* Foreign Exchange
Monitoring
* Prudential
Guidelines
* Acts as lender of
the last Resort
* Reserve
Requirements
* Cash Reserve
Requirement
* The Stabilization
Securities
* Interest Rate
Policy
* Capital Funds
Adequacy
The Nigerian Deposit Insurance Corporation (NDIC)
The NDIC was
established by Decree No. 27 of 19 June 1988. Although it is a special type of
insurance
company, it
complements the efforts of the Central Bank in the regulation and supervision
of banks. Specifically,
NDIC performs the
following functions:
1. Provision of
deposit insurance of related services for banks.
2. Examination of the
books and affair of insured banks and other deposit taking institutions to
ensure a
healthy operation.
3. Identification and
restructuring of acting banks to avoid bank failures.
4. Settlement of the
depositors of failed banks up to a maximum indemnity of N50,000. Deposits in
excess
of this amount are to
be settled along with other creditors as part of the bank liquidation process
in the
event of bank
failure.
5. Resolution of the
problem of distress in the Nigerian Financial system.
In performing the
above functions, the NDIC works hand-in-hand with the CBN. This regulatory body
is
meant to insure all
deposit liabilities of licensed banks and other financial institutions.
The Federal Ministry of Finance
This ministry acts as
an agent of the government in the financial system. Its functions are:
(1) Advising the
government on its monetary and fiscal operations after consultations with the
Central
Bank of Nigeria.
(2) Preparation of
the Federal Government Budget and its break-down.
(3) Licensing of
bureau de change. It was also involved in the licensing of banks until 1991
when it
became the sole
responsibility of the Central Bank of Nigeria.
(4) Carrying out
related financial institutions as directed by the Presidency. Before the CBN
was given
more autonomy, the
CBN was reporting to the Ministry of Finance.
The Securities and Exchange Commission (SEC)
This body is
responsible for the regulation of capital market operations in Nigeria. It was
established in 1979
by the SEC Act of 27
September 1979 to replace the capital issues Commission that existed before
then. The
SEC Decree of 1988
further strengthened its activities. Its functions among others are as follows:
* Promotion of an
orderly and active Capital Market.
* Determination of
the amount and timing of securities to be offered privately with intent to
transfer them
later.
* Registering and
supervising stock exchange and branches stock brokers issuing houses investment
advisers and other
bodies involved in securities trading.
* Approval of
companies to be listed in the capital market.
* Creating the
necessary atmosphere for orderly growth and development of the capital market.
* Approval and
regulation of mergers and acquisitions vide the companies and Allied matters
Decree
1990.
* Issuance of
guidelines on foreign investments, in the Nigerian Capital Market.
* Maintenance of
Surveillance over the Capital Market.
The National Insurance Commission
The National
Insurance Commission (NIC) was established in 1997. This body which was established
by the
president in his 1997
annual budget speech took over the Supervision and control of the business of
insurance
in Nigeria from the
National Insurance Supervisory Board which was established by the Insurance
Special
Supervision Fund
(Amendment) Decree No. 62 of 1992. This commission is the apex institution in
the insurance
industry. However, it
collaborates with the Central Bank of Nigeria in performing its (NIC)
functions.
Prior to 1992, the
insurance department of the Federal Ministry of Finance carried out the
supervision of
insurance companies
and their operations.
The functions of the
Nigerian Insurance Commission include among other things:
(a) The supervision
and control of insurance business in Nigeria.
(b) Settings of
standards for the conduct of insurance business.
(c) Establishment of
a bureau to receive and resolve public complaints against insurance companies
and
intermediaries.
(d) Consideration and
approval of insurance premium rites applicable to various classes of insurance.
Now that the distress
syndrome is affecting the insurance industry, this commission is expected to be
involved
in the resolution of
distress in the industry.
The Federal Mortgage Bank of Nigeria
To help tackle the
problem of housing which has been an issue of serious concern in most Nigeria
cities, the
Federal Mortgage Bank
was established by Decree No. 7 of 1997. This new body took over the assets and
liabilities of the
Nigerian Building Society which was established in 1956. From inception, the
bank has
been functioning as
one of the development banks. It provided both finance and advisory services in
the
area of housing. The
regulatory and supervisory role of this institution became prominent from 1991.
To
help imple- menting
the National Housing policy which was adopted in 1990 by the government, Decree
No. 3 of 1991 gave
more powers to the Federal Mortgage Bank of Nigeria to act as the apex
Mortgage institution
in Nigeria.
Furthermore, in 1993,
the finance functions of this institution were transferred to a new institution
known
as Federal Mortgage
Finance Limited which was carved out of the bank. This is to enable the bank
concentrate
on its regulatory
role.
In this new position,
the functions of the bank include:
- The Licensing
supervision and regulation of primary Mortgage Institutions.
- Management of the
National Housing Fund.
- Acting as a banker
and adviser to other mortgage finance institutions who retail functions to
individuals, organization
s and estate developers.
- Carrying out
researches aimed at improving housing patterns and standards in both urban and
rural areas.
- Encouragement and
promotion of the development of mortgage institution at states and
national levels and
provision of long-term finance for them (Ugwuanyi 1997).
The National Board for Community Banks
Following the
introduction of a new set of self-sustaining banks called Community Banks in
1990,
the National Board
for Community Banks was established to serve as an apex institution for Community
Banks. Like other
supervisory bodies, its roles are performed in collaboration with the Central
Bank
of Nigeria.
Specifically, the functions of the Board are:
(i) To receive and
process application for the establishment for Community Banks and issuance of
provi- sional license
to Community Banks before their formal licensing by the Central Bank of
Nigeria.
(ii) To supervise and
control the activities of Community Banks, provide them with long-term finance
and set standards to
ensure the safety of Community Banks
.
Conclusion
A Central Bank is the
government’s representatives in the financial system. It has a very close
association with both
the government and the financial sector of any Nigerian economy, advising the
government on
monetary policies and implementing the policies on behalf of the government. A
Central
Bank helps to control
the Commercial Banks, Merchant Banks, Development Banks, Community Banks,
Peoples’ Bank,
Finance Companies, Insurance Companies, etc. The effective implementation of
regulatory measures
will likely give earlier warning about the potential problems of Financial
Institutions
and hence provide
financial regulations with more time to prevent failures.
Summary
In this unit, we have
succeeded in focusing exhaustively on the controls of Financial Institutions.
This is
very necessary for
greater efficiency and effectiveness of the Financial Institutions.
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