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Monetary Policy Impact on Nigeria's Banking Stability

The paper analyzes the impact of monetary policy on banking system stability in Nigeria, particularly during the global financial crisis. It finds that increases in monetary policy rates and inflation negatively affect stability, while higher cash reserve requirements and banking reforms have a positive effect. The study recommends careful monitoring of monetary policy and adjustments to enhance macroeconomic and banking stability.

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oviokesamuel02
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17 views1 page

Monetary Policy Impact on Nigeria's Banking Stability

The paper analyzes the impact of monetary policy on banking system stability in Nigeria, particularly during the global financial crisis. It finds that increases in monetary policy rates and inflation negatively affect stability, while higher cash reserve requirements and banking reforms have a positive effect. The study recommends careful monitoring of monetary policy and adjustments to enhance macroeconomic and banking stability.

Uploaded by

oviokesamuel02
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Abstracts

The paper examined the effect of monetary policy on banking system stability in

Nigeria. The main objective was to evaluate how monetary policy affected the banking

system stability during the global financial crisis in Nigeria. Static and dynamic error

correction models were estimated using monthly data from January 2007 to June 2013 and

the error correction model was found most efficient. The banking system stability index was

computed using banking soundness index, banking vulnerability index and economic Climate

index. The results showed that increase in monetary policy rate, depreciation of nominal

exchange rate and rising inflation rate negatively affected the banking system stability.

However, similar increase in cash reserve requirement and banking reforms improved the

banking system stability. Accordingly, the paper recommended that the CBN should be

watchful of increase in MPR, depreciation of the Naira and rising inflation to ensure banking

system stability. Also, increase in CRR and financial reforms can positively impact on the

banking system stability in Nigeria. Overall, there is need for the Bank to identify appropriate

adjustment in its instruments to achieve macroeconomic stability and banking system

stability.

The study also investigates the effect of monetary policy on banking sector stability

in Nigeria, utilizing quarterly data for the period 2007 to 2021. The study employs the

autoregressive distributed lag (ARDL) bounds testing approach to cointegration. Results

show that a long run relationship exist between banking sector stability and monetary policy

in Nigeria. Furthermore, monetary policy rate, liquidity ratio, and cash reserve ratio are found

to enhance banking sector stability. The study recommends, among others, that cash reserve

and liquidity ratios should be kept at levels that will prevent excess liquidity in the system.

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