THE LEGAL PERSPECTIVE TO CAPITAL RECONSTRUCTION OF BANKS IN NIGERIA.

CHAPTER ONE

GENERAL INTRODUCTION

1.0 BACKGROUND TO THE PROBLEM

In Medieval Latin, capital appears to have denoted the head of cattle or other livestock, which have always been important source of wealth beyond the basic meat, milk, hides, wool and fuel they provide¹. Like the modern capital livestock has the potential to generate surplus value for accumulation. This principle of accumulation and preservation of wealth ran through ages. This probably was the reason Adam Smith stated that, “for accumulated asset to become active capital and put to additional production, it must be fixed and realized in some particular subject after its labour is past”². Capital asset can be rented (for one off production) or acquired out rightly for joint input in series of production. This nature enable capital to command two prices i.e. the service price (rent) and or asset price³.

Hernando, D. S. The Mystery of Capital, Finance and Development, March 2001 Vol. 38 No 1 p.29. also available at http:/www.imf.org/external/pubs/ft/frand/2001/03/Desoto.htm visited on 04/03/2010

• Ibid

• Yotopoulos ,J and Jeffery N. B. Economics of Development Empirical Investigation Harper Row publishers New York pp164-165

Today capital includes any asset that can be stored up for later use in the production of goods and services. Even some kind of labour has been classified as a specie of capital hence the use of the term “human capital” to differentiate human trained skill and entrepreneurship from primitive labour. Capital in a classical conception “ is born when the economic potential of an asset is represented in writing- in titles as security, a contract, and other such records and when the most economically and socially useful qualities about the asset as opposed to the virtually more striking aspects of the asset is considered”⁴ . The dynamic nature of capital underscores its importance and explains why it will continue to engage the minds of lawyers and economists.

It is obvious that in any market system, large proportion of wealth is concentrated in capital in the forms of interests held in share, securities, futures exchanges and deposit with banks and other financial institutions. Banks are also known to be the fulcrum upon which the capitalist system revolves. It is therefore important for the efficient operation of the market system that capital of banks and the banking system should be preserved

• Hernado, D. S. op.cit

and periodically restructured to maintain safety and soundness in banking system.

Because of this nature of capital, capital accumulation will continue to be central issue for legal and economic development. In no other system is the multiplicative power of capital better exemplified than the banking system. Banks provide a vital channel through which credit is made available to the real sector of the economy for production of goods and services. Governments also use banks as medium to transmit and stimulate economic growth through their monetary polices. Government has through the Central Bank used monetary, regulatory and supervisory policies to strengthen the banking system.

1.1.      JUSTIFICATION FOR THE RESEARCH

Numerous issues in corporate and banking sector restructuring that arise consistently during bank crises in Nigeria point to inherent conflict in banking business as shareholders attempt to achieve higher returns on their investment at the expense of depositors and other stakeholders in the banking system. As a result, all banks however well their risks are managed

have the same inherent flaw in their balance sheets. Their liabilities are certain and short-term whereas their assets are uncertain in value and long-term in nature. This sameness of banks, results in a high tendency for known problems in one bank to spread rapidly to other banks and to the whole banking system if the problems are not checked.

Failure to strike a balance between profit motive of stakeholder in the banking system and protection of the depositors fund has resulted in failure of some banks in Nigeria. Our judicial and regulatory process appeared ill equipped to tackle these challenges.

THE LEGAL PERSPECTIVE TO CAPITAL RECONSTRUCTION OF BANKS IN NIGERIA.