Causes and impacts of global financial crisis on the performance of Nigerian banks (a case study of selected banks)

Incessant bank failure in the face of several banking policies calls for appropriate prophylactic measures capable of stemming the tide because the pain of bank failure touches the banker, customer, government and the general public as well. Thus, when the global financial crisis came, it destabilized the expected return of the consolidation exercise of 2005 which seriously affected the operation of Nigerian banks. This study evaluates the causes and implications of the global financial crisis on the performance of Nigerian banks with a view to determine the extent of this impact and determining various options that could cushion the impact as well as avoiding future reoccurrence. The secondary data used in this study are those relating to loans and advances, customers deposit and investment in securities (independent variable), while the dependent variable is bank performance. Ordinary Least Square method of Multiple Regression Analysis was used to manipulate the time series data into Econometric model of inflation, while F test was used to test the formulated hypotheses. This study reveals that global financial crisis has a negative impact on the performance of Nigerian banks despite in defiance of high liquidity possessed by these banks immediately after the consolidation exercise of 2005. It was recommended that banks should desist from financing other banks’ investment in securities to avoid multiplier effect syndrome while the Nigerian government should find alternative ways to fund their budget deficitBanking policies; Loans and Advances; Securities; Liquidity; Consolidation; Lending rates; Deposit rate.

Do we face a global"capital shortage"?

The author of this paper assesses the medium- to long-term outlook for global demand and supply of capital. He reaches the following conclusions: 1) the demand for investment funds in developing countries will remain strong, but most increased demand will likely be met by domestic savings. Investment's share in GDP will probably rise in these countries, but so will saving's share, so their net claim on industrial countries'savings is likely to remain small. Of course, savings will not rise automatically. It is essential that policies, institution, and the economic environment be conducive to saving; 2) financial liberalization and integration of international capital markets will continue to give developing countries as a group improved access to private foreign capital. But whether specific countries attract and sustain such inflows will depend on their economic prospects and policies, including conditions that promote domestic saving and investment. Investments needs in developing countries are great, but"effective"demand for foreign capital will remain limited by the countries'perceived creditworthiness and viability; 3) most low-income countries will continue to depend mainly on official capital for some time. But official capital will likely be increasingly scarce, so these countries must identify their domestic resource mobilization and accelerate the policy reform needed to attract private investment; 4) the critical factor in alleviating pressure on global interest rates will be progress on fiscal consolidation in industrial countries, especially the reform of social security systems. Net capital flows from industrial to developing countries are much smaller than the budget deficits in industrial countries; and 5) international capital markets will tend to remain tight in the coming decade, but a severe global capital squeeze and a big increase in global real interest rates are unlikely if industrial countries continue fiscal consolidation. Without such consolidation, global real interest rates could rise well above already high recent levels of about 4 percent, with adverse consequences for all countries.Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Capital Markets and Capital Flows,International Terrorism&Counterterrorism,Economic Theory&Research,Banks&Banking Reform,Macroeconomic Management,Environmental Economics&Policies,International Terrorism&Counterterrorism

What does the 1930s’ experience tell us about the future of the Eurozone?

If the Eurozone follows the precedent of the 1930s, it will not survive. The attractions of escaping from the gold standard then were massive and they point to a strategy of devalue and default for today’s crisis countries. A fully-federal Europe with a banking union and a fiscal union is the best solution to this problem but is politically infeasible. However, it may be possible to underpin the Euro by a ‘Bretton-Woods compromise’ that accepts a retreat from some aspects of deep economic integration since exit entails new risks of financial crisis that were not present eighty years ago

An agenda for the European Council: feasible steps to bring the eurozone back from the precipice. CEPS Policy Brief No. 274, 20 June 2012

In the run-up to the emergency European Council meeting at the end of June, Stefano Micossi outlines in this Policy Brief the main elements of a realistic and yet incisive policy package, capable of reassuring financial markets and a bewildered public opinion. It is more than Germany has been willing to accept so far but much less than many of the demands it will confront at the Council meeting. More importantly, it only requires a minimum of additional disbursements by the member states, while strengthening risk-sharing for sovereign and banking risks

The New Politics of Austerity: Fiscal Responses to the Economic Crisis in Ireland and Spain

This paper adopts a new analytical approach to explaining choices in fiscal politics in Ireland and Spain between 2008 and 2010, in response to international economic crisis. It adopts a comparative cross-national research design to explore why two countries with similar pre-crisis fiscal profiles adopted radically different strategies in the initial phase of the crisis: Ireland adopted an orthodox deficit-reduction strategy, while Spain implemented a ‘heterodox’ stimulus fiscal package. Yet by mid-2010, Spain’s fiscal stance had converged with Ireland’s, as the wider European crisis deepened and the scope for autonomous national policy choice narrowed. The paper tracks this shift in a second stage of the research design, examining within-country variation over time, to provide a nuanced and sophisticated analysis of strategic choices at critical moments. It argues that the shift toward a European politics of austerity is different in a number of important ways from the older politics of fiscal consolidation, and that this has far-reaching implications not only for the evolution of European integration, but also for the balance between democratic politics and transnational markets.2008 banking crisis, regulatory failure, Ireland, principles based regulation, public debt

Fiscal Federalism in Crisis: Lessons for Europe from the US

The euro area is facing crisis, while the US is not, though the overall fiscal situation and outlook is better in the euro area than in the US, and though the US faces serious state-level fiscal crises. A higher level of fiscal federalism would strengthen the euro area, but is not inevitable. Current fiscal reform proposals (strengthening of current rules, more policy coordination and an emergency financing mechanism) will if implemented result in some improvements. But implementation might be deficient or lack credibility, and could lead to disputes and carry a significant political risk. Introduction of a Eurobond covering up to 60 percent of member states’ GDP would bring about much greater levels of fiscal discipline than any other proposal, would create an attractive Eurobond market, and would deliver a strong message about the irreversible nature of European integration

Lending of Last Resort, Moral Hazard and Twin Crises: Lessons from the Bulgarian Financial Crisis 1996/1997

In 1996/1997 Bulgaria was hit by a severe financial crisis, spreading from a banking crisis to a currency crisis. While being widely neglected by the financial crisis literature and the international discussion we argue that the Bulgarian Financial Crisis might serve as an illustrative example of a twin crisis primarily (but not only) due to systematic moral hazard behaviour of the banking sector. Thus, the Bulgarian Financial Crisis might be closer to the story of third generation moral hazard models of currency crises than the Asian Crisis. We also show how Bulgaria managed to overcome the crisis by introducing a second generation currency board allowing the central bank to act as a strictly limited lender of last resort thereby (hopefully) making the country less prone to a financial crisis in the future.http://deepblue.lib.umich.edu/bitstream/2027.42/39848/3/wp464.pd

Fiscal Adjustment and the Costs of Public Debt Service: Evidence from OECD Countries

We use a panel of 21 OECD countries from 1970 to 2009 to investigate the effects of different fiscal adjustment strategies on long-term interest rates – a key fiscal indicator reflecting the costs of government debt service. A government confronted with high deficits and rising debt will sooner or later need to enact fiscal adjustments in order to avoid solvency problems. Over the last four decades, such measures taken by governments in OECD countries have varied in duration, size, composition and in their success to re-establish fiscal sustainability. Controlling for various economic, fiscal and political factors, we find that the size and the composition of a fiscal adjustment significantly affect interest rates as well as yield spreads. Adjustments that are relatively large and those that primarily depend on expenditure cuts lead to substantially lower long-term interest rates. However, periods of fiscal adjustments do not generally have an influence on interest rates, even if they were successful and led to lower deficits and debt levels. Instead, financial markets only seem to value strict and decisive measures – a clear sign that the government’s pledge to cut the deficit is credible.fiscal adjustment, consolidation policy, government debt, deficit, interest rates