1.0 Introduction
The desirability to develop a viable monetary and fiscal policy has reached it unprecedented limit in our economy, money as a medium of exchange emerged with the waves to organize a political and economical institution which will enforce a unique legal tender. Nowadays, money has played an indispensable role in propelling the activities of our economy. Fiscal policy on the other hand is an interwoven complement of the former.
Monetary policy is the major pre-occupation of the Central Bank of Nigeria (CBN), the extend to which they enforce their role successfully would depends on the statutory power conferred on them by the establishing law. It involves the management of the expansion and contraction of the money in
circulation. Monetary policy cannot be treated in isolation of fiscal policy because the letter is the evaluation of the whole range of government taxes and spending decision which in Nigeria is a typical duty of the federal ministry of finance. In practical term, their relationship could be illustrated thus; if government were to embark on large fiscal deficits and the Central Bank refuse to finance (means and advances) such deficit through monetary policy, the resulting effect is that an unsustainable path of domestic debt would occur which in turn, trigger a flight to cash and generalized distress in the banking sector.
Monetary policy may yield better result during period of expansion, prosperity (Boom) and recession while fiscal policy make a stronger impression during depression. These policies are more adequate for solving today’s complex economic problems and have blended very well in tackling contemporary domestic and global economic phenomenon.
Generally, for a sound and prudent enhancement of activities in commercial bank and other financial institutions, coordination of fiscal and monetary policies can create an integral path for a vibrant economy.
1.1 Statement Of The Problem
Distress in commercial bank and other financial institutions in Nigeria have called for a serious controversial debate, as to what should be the cause of this distress. A pilot study about these business phenomenon reveals that most of these failures is associated with the fiscal and monetary policies implemented. Why then do these policies some time fail to enhance the corporate culture of banks activities and other related problem will constitute the statement of this research viz:
- The inconsistencies of these monetary and fiscal policies by the authority: consequence on activities of commercial banks.
- The negligence exhibited by some of commercial banks in implementing some of these policies established by the authority and its adverse effect on the entire system of the economy.
- The problem of irregular assimilation of information to depositors/borrowers who operate various accounts with the bank on the authorities directives.
1.2 Need For The Study
Radical reforms to the system of prudential regulation and supervision have been implemented in Nigeria since the late
1980’s. The reform(s) had proved ineffective in ensuring sound bank management, as the scale of financial distress among various banks indicates. Nevertheless, the political and economic environment is very difficult in Nigeria for banks and regulators because of persuasiveness of corruption in both public and private sector.
The recent socio-economic development in the banking industry is of paramount interest to the general public moreover, this project on fiscal and monetary policies effect on the activities of commercial banks and other financial
institutions is initiated to offer a conceptual framework to policies through the issue of development and regulation, its implications on banks operation. It will also embark on an empirical analysis and design, not only to gain understanding or to design, not only to meet the programme requirement of the polytechnic but to give a useful and interesting cause of study to the following people.
i. Government Parastatals:
They will find it useful in coordinating monetary and fiscal policies for better economy.
ii. Banking Sector:
Commercial Banks and other financial institutions will be motivated in keeping to the laws, regulations and guidelines governing bank(s) as a measure of efficiency.
iii. The Public:
Banks debtors and depositors will see the need of adhering to the information directive provided by the authority (ies) as a means of maximizing their investment.
iv. Research Scholars:
It will provide the bases for further research work on this area for students who may deem it suitable an appropriate.
1.3 Objectives Of The Study
Fiscal and monetary policies impacted differently on the activities of bank because of bank-specific characteristic, beside that, the country’s banking system and overall economic as been undermined by endemic corruption, inadequate infrastructures, political instability and poor macroeconomic management. It is against this backdrop that this study is insinuated to
- Highlight the obligation of regulatory authorities and their controlling standard in measuring commercial banks and other financial institution activities.
- Critically, evaluate a detail analysis on the instrumental efficiency of monetary and fiscal policies in the activities of commercial banks.
- Enlightened, the effect (in two) above on the economy at large.
- Examine the shortcoming of fiscal and monetary policies. Finally, the above state objective will be useful in accomplishing the goals of this research.
1.4 Research Question And Hypothesis
To accomplish the aim of this study, these research questions will provide an encompassing guide to the researcher.
- What generally are the major factors militating against proper accomplishment of monetary and fiscal policies objectives in bank’s activities?
- To what extent are those factors detrimental to the smooth running of the economy?
- Is there any relationship existing between fiscal and monetary policies with respect to the growth or failure of commercial bank and other financial institution?
- Are there any other measure adopted by regulatory authorities apart from monetary and fiscal policies to monitor the activities of commercial bank?
- What are the instrument of monetary and fiscal policies available in monitoring the bank and its default?
The researcher’s hypotheses are base on the stated questions
- Ho: The activities of commercial bank and other financial situation are not related to monetary and fiscal policies instrument and so no impact is created in the economy
Hi: The activities of commercial bank and other financial situation are related to monetary and fiscal policies instrument and so impact is created in the economy. - Ho: Investor’S reaction to monetary policies do not effect the activities of banks over difference state of economy.
Hi: Investor’s reaction to monetary policies effect the activities of bank over difference state of economy. - Ho: Negligence in exhibiting implemented fiscal and monetary policies are not due to selfish attitude of bank’s management.
Ho: Negligence in exhibiting implemented fiscal and monetary policies are due to selfish attitude of bank’s management.
1.5 Scope Of The Study
This study restrict its scope to monetary and fiscal policies and its impact on the activities of commercial banks and other financial institutions, as directed by federal ministry of finance and Central Bank of Nigeria. That if to say Nigeria’s banks is used as the population while some selected bank are as the sample population size of this study.
From the reviewed policy environment the problem existing in economy that the current fiscal and monetary policies should address are identified and curbed to a minimal.
1.6 Assumption Of The Study
The implementation of monetary policy is the sole responsibility of the central bank of Nigeria while that of fiscal
policy is tasked on the federal ministry of finance. They adopted various policy measures to coordinate, control and monitor the activities of the commercial banks and other financial institutions, in the light of this preliminaries the following assumption are made possible.
- That the activities of commercial banks and other financial institutions would not be measured if there is no regulatory framework or policy yard-stick.
- Those monetary and fiscal policies instruments are best coordinated by the authorities to influence the activities of the commercial banks and other financial institution.
- That an easy monetary policy will lower the interest rate, increase the investment and GDP equilibrium level while tight money policy will raise the rate of interest, reduced the investment, restrain inflation.
- That the expansionary effect of fiscal policy depends on how the budget deficit is financed, the contractionery effect of fiscal policy depends on the disposition of that budget surplus.
- That budget may be weakened by net export effect which works through changes in
- The interest rate
- The international value of naira c. Exports and imports.
1.7 Definition Of Terms
1. Monetary Policy:
According to Wright, “monetary policy is a deliberate effort by the monetary authority(CBN) to control the money supply and credit conditions for the purpose of achieving certain broad economic objectives”. The primary tool of monetary policy is always a short term interest rate.
2. Fiscal Policy:
It is refers to that part of government policy concerning the raising of revenue through taxation and other means and deciding on the level pattern of expenditure for the purpose of influencing economic activities. The fiscal policy tool in Nigeria is the tariff measure that has been most often changed.
3. Commercial Bank:
Those are financial institutions (individual, firms, organization and government) which accept deposits and gives out advances as well as performing other services to their customers. They are also known as ‘Joint Stock company’. Their loan constituted various assets or bank deposit creation. Their activities follow an implemented monetary policy which is partly dependent of the fiscal policy.
4. Financial Institutions:
These are institutions which serve the purpose of channelling funds from lenders to borrowers. They hold money balance of or borrow from individuals and other institutions, in order to make loans or other investment. They are categorized into two classes: bank and non bank or thrifts financial institutions.
In Nigeria the following types of financial institutions can be identified.
- Traditional Banks
- The Central Bank
- Commercial Banks
- Development Banks e. Merchant Bank
- Insurance Companies
