Is financial sector liberalization the cause of banking fragility in Nigeria?

Increased financial sector deregulation has been a major item in the economic policy agenda of many developing countries, including Nigeria, during the last twenty years. In this time period, the frequency of systemic banking problems has increased markedly all over the world, raising the issue of whether greater banking fragility may be a consequence of liberalization. The authors attempt to shed light on the issue by examining the impacts of financial liberalization on banking fragility using a quarterly time series data of Nigeria during the period 1987/1-1998/4. Empirical results showed that banking fragility in Nigeria was a consequence of financial deregulation, coupled with other factors including adverse macroeconomic developments (like high inflation, fiscal deficits and exchange rate depreciation) and poor macroeconomic policies (which were responsible for low per capita income). (InWent/DÜI)