A Comparative Analysis of the Asset Management Corporation of Nigeria and the Troubled Asset Relief Program of the United States

Abstract

This article is a comparative analysis of the Asset Management Corporation of Nigeria (AMCON) with the Troubled Asset Relief Program (TARP), in the US. AMCON is an institution which was created to purchase non-performing loans of Nigerian banks due to their exposure to the oil and gas sector and the capital market. AMCON acquires these toxic loans of both distressed and sound banks, and then converts the loans to equities and sells them off. Banks that wish to sell their toxic loans to AMCON sustain losses since the average purchase price is 40% of the cost of the loan. Once AMCON purchases the toxic loans of banks, it issues seven-year Federal Government guarantee bonds to the banks. TARP, on the other hand, was established under the Emergency Economic Stabilization Act, 2008, to ameliorate the effects of the 2007 global financial crisis on the US economy. Its primary focus was on addressing the impact of the crisis on financial institutions as a result of their exposure to subprime mortgages. TARP later incorporated automobile companies into its program, as the failure of these companies, at the time, would have had a more significant impact to the US economy. The Secretary of the Treasury is responsible for the purchase of troubled assets, the management and sale of the assets and the remittance of the revenue from the sale to the US Treasury. TARP is encompassing and has the Financial Stability Oversight Board, the Congress, the Congressional Oversight Panel, the Comptroller General of the US, Judicial Review and Special Inspector General to help the Secretary in the performance of his duties. These checks and balances are lacking in AMCON; hence, the tendency of abuse of power is high under AMCON. While TARP has succeeded in stabilizing the US economy, AMCON is still struggling to stabilize the Nigerian banking sector. On further examination of these two institutions, this paper finds that there are a number of factors which hinder the realization of AMCON’s objectives. Primarily, this paper finds that there are no favourable government policies to complement AMCON. The absence of such policies, is challenging for the sustainability and regulation of the Nigerian banking system. This article concludes that similar to TARP, AMCON must be further developed and strengthened, and contain a more exhaustive system of checks and balances. In addition, it must incorporate more favourable government policies in order to be a success story.