WHAT IS FINANCIAL SYSTEM?
A financial system is a conglomerate of various markets, instruments, operators, and institutions that interact within an economy to provide financial services such as resource mobilization and allocation, financial intermediation and facilitation of foreign exchange transactions to exchange foreign trade.
Financial system in a market economy is comprised of:
Money and non-monetary claims (served debt and equity).
Places, institutions or communication systems that provide a market where financial claims can be bought and sold.
Specialists such as brokers and underwriters who aid in the direct transfer of funds from surplus to deficit units.
A wide variety of intermediaries that provide attractive indirect routes for the transfer of funds surplus to deficit units.
Households, business firms and government unit that generate financial surpluses and deficits.
THE DEVELOPMENT AND STRUCTURE OF THE NIGERIAN FINANCIAL SYSTEM
The Nigerian financial system comprises the regulatory/ supervisory authority, banks and non-bank financial institutions. The regulatory/supervisory authorities are the Central Bank of Nigeria (CBN) at the apex, the Nigerian Deposit Insurance Corporation (NDIC), Security and Exchange Commission (SEC), the Federal Ministry of Finance (FMF), the Nigerian Supervisory Board (NISB), and the Federal Mortgage Bank of Nigeria (FMBN).
The CBN is a major regulator and supervisor in the money market, with the NDIC playing a complementary role. The CBN exclusively regulates the activities of finance companies and promotes the establishment of development banks. The National Board for Community banks, while the final granting of licence is the CBN’s responsibility.
The SEC is the Apex regulator/ supervisor in the capital market, with NSE as self-regulatory institution. The FMF and the CBN share control over Bureaux de change while the NISB is the regulatory authority in the insurance sector. The FMBN regulates mortgage financial business in Nigeria (CBN, 1990).
Developmentally, the Nigeria financial system has witnessed a rapid growth in the last two decades. This could be seen from the widespread establishment of many financial institutions. The growth can be claimed to due to the oil boom and the awareness of the importance of money by Nigerians.
One of the characteristics of the Nigerian financial system is the dominant role the Federal and State Government play in the financial intermediation directly or indirectly. There are a number of government parastatals which the government often lend money to. The state and federal governments also borrow money from the financial system. The governments are also involved in the financial intermediation indirectly through ownership of banks or financial institutions.
Though Nigeria has one of the most modern financial institutions today, there are some worrying features about the system. Nigeria still has an undiversified and unspecialised banking system. The merchant banks are supposed to provide wholesale banking while commercial banks are supposed to provide retail banking. The only exceptions are the development banks and insurance companies. Others perform the same functions. The difference only lies in the quality of service. The co-operative Banks are supposed to operate essentially for the Co-operative Societies but they compete with commercial Banks for all normal banking services. There is no noticeable line of difference between the commercial and merchant banks. They both lend to individuals, corporate bodies and the government. Again, the structure of the financial institutions is such that concentration is in the urban areas despite the rural banking scheme.