The Nigerian Bank Consolidation of 2005: A Case for Scale in Banking?
by Funmilola Osinupebi
It is common for developing countries to look to the experiences of developed countries as a basis for creating their own policies. One such instance was applied to changing regulatory policy in Nigeria, where policy makers aimed to transform the Nigerian banking system from one dominated by many small and relatively unstable banks to a system with a few bigger and more reliable banks. Pervading theory of banking systems cites the experiences of Germany and America, as both countries successfully illustrate the wisdom of a consolidated banking system, allowing as little diffusion as possible. Using the analysis of several economic indicators, this paper attempts to evaluate whether or not the positive impacts that were felt within the Nigerian economy occurred similarly to the successes of the German and American banking systems after consolidation. The findings of this paper indicate that a mandatory consolidation policy does not yield the same economy-stabilizing benefits that would result from a more organic process of bank consolidation.