Table of Contents

Managing Risk in the Financial System

Managing Risk in the Financial System

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Managing Risk in the Financial System makes important and timely contributions to our knowledge and understanding of banking law, financial institution restructuring and related considerations, through the production of an innovative, international and interdisciplinary set of contributions which link together the law and policy issues surrounding systemic risk and crisis management.

Chapter 23: Financial Safety Net Reform in Nigeria

Ganiyu Ogunleye

Subjects: economics and finance, financial economics and regulation, money and banking, law - academic, finance and banking law

Extract

1 Ganiyu A. Ogunleye 23.1. INTRODUCTION Nigeria is the world’s sixth-largest crude oil producer and the secondlargest economy in Africa. Its economy, therefore, is largely crude-oil dependent and vulnerable to external shocks. Fiscal policy is driven by oil revenue and has been pro-cyclical due to price volatility. The boom period of 2004–08 witnessed huge liquidity flows which encouraged expansionary fiscal policy with attendant pressures on inflation and exchange rates. The economy had experienced boom and bust cycles which manifested in macro-economic instability. A resilient financial safety net requires macro-economic stability; mutually reinforcing monetary and fiscal policies; effective regulation; effective depositor/investor protection and sound governance of banking institutions. To what extent has Nigeria attained these imperatives? Given its vulnerability to external shocks, maintaining macro-economic stability has been a daunting challenge to policymakers and the financial system safety net has been put to test from time to time. This chapter focuses on the performance of Nigeria’s financial safety net over the last decade. The chapter is divided into seven sections. Section 23.2 provides an overview of the financial system, while Section 23.3 discusses the regulatory framework. Section 23.4 highlights the causes of the recent financial crisis, while Section 23.5 discusses the Reform initiatives. Section 23.6 focuses on lessons learned and Section 23.7 offers some conclusions. 23.2. OVERVIEW OF FINANCIAL SYSTEM Banking, insurance and securities are the three major components of the financial system and they are complemented by the pension industry. The system is dominated (80 per cent of total assets)...

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