world. the inability of the nigerian banking system to voluntarily embark on consolidation in line with the global trend has necessitated the need to consider the adoption of appropriate legal and supervisory frameworks as well as a comprehensive incentive package to facilitate mergers and acquisition in the industry as a crisis resolution option and to promote the soundness, stability and enhanced efficiency of the system. context : where are we coming from and where are we now? the nigerian banking system has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as depth and breadth of operations. these changes have been influenced largely by challenges posed by deregulation of the financial sector, globalization of operations, technological innovations and adoption of supervisory and prudential requirements that conform to international standards. as at end - june, 2004, there were 89 deposit money banks operating in the country, comprising institutions of various sizes and degrees of soundness. structurally, the sector is highly concentrated, as the ten largest banks account for about 50 percent of the industry ’ s total assets / liabilities. most banks in nigeria have a capitalization of less than $ 10 million. even the largest bank in nigeria has a capital base of about us $ 240 million compared to us $ 526 million for the smallest bank in malaysia. the small size of most of our banks, each with expensive headquarters, separate investment in software and hardware, heavy fixed costs and operating expenses, and with bunching of branches in few commercial centres - lead to very high average cost for the industry. this in turn has implications for the cost of intermediation, the spread between deposit and lending rates, and puts undue pressures on banks to engage in sharp practices as means of survival. i am sure many of you would agree with me that some of our banks are not engaged in strict banking business in terms of savings intermediation - they are traders - trading in foreign exchange, in government treasury bills, and sometimes in direct importation of goods through phony companies. this is not healthy for the economy. think about this caricature of what could happen under this system. a group of people get a banking license, use their connections to garner some billions of naira in deposits from one or two parastatals, and use the deposits to trade in government treasury bills, foreign exchange and open letters of credit for importers. such a bank can declare billions of naira in profit. it sounds like a fiction but this describes the situation with many

sanusi lamido sanusi : global financial meltdown and the reforms in the nigerian banking sector speech by mr sanusi lamido sanusi, governor of the central bank of nigeria, at a public lecture delivered at the convocation square, abubakar tafawa balewa university, bauchi, 10 december 2010. * 1. * * protocol distinguish ladies and gentlemen, let me begin by thanking the organizers for honouring me with this invitation. first of all, i must thank the vice - chancellor, the senate and council of the abubakar tafawa balewa university ( atbu ) for this wonderful privilege and for inviting me to give this lecture titled “ global financial meltdown and reforms in the nigerian banking sector ”. i am aware that the highly regarded atbu public lecture series focuses on developments on topical issues in our nation. therefore, my invitation to this highly regarded event in the ancient city of bauchi, and the hometown of our great prime minister, late alhaji abubakar tafawa balewa, is greatly appreciated. as the international monetary fund, imf observed, the extent and severity of the crisis that began with the bursting of the housing bubble in the united states in august 2007 reflects the confluence of myriad of factors some of which are familiar from previous crises, while others are new. as in previous times of financial turmoil, the pre - crisis period was characterized by ( i ) surging asset prices that proved unsustainable ; ( ii ) a prolonged credit expansion leading to accumulation of debt ; ( iii ) the emergence of new types of synthetic financial instruments ; and ( iv ) regulatory failure. this time around the rapid expansion of securitization ( not itself a new phenomenon ), which changed incentives for lenders and lowered credit standards caused the crisis. systems became fragile because balance sheets became increasingly complex ( further complicated by increased use of off - balance - sheet instruments ). financial market players were highly leveraged and relied on wholesale funding and external risk assessments. cross - border spillovers intensified after the crisis started because financial institutions and markets across borders were closely linked and risks highly correlated. no doubt, the world is inextricably linked by globalization. thus, the economic and financial crisis, which started in the united states, destabilized markets and economies ( developed, developing and underdeveloped ) around the globe and, has continued to dominate discussions on the global economy. these days