Abstract
This paper provides new evidence on the effects of banking sector recapitalization in Nigeria. It set up a simple model of the banking firm, to investigating the impact of capital regulation on banks behavior as well as having possible effects on the economy. Time series data covering the year 1970-2004 were fitted to the regression model using both Ordinary Least Square (OLS) and Vector Error Correction (VEC) method of estimations. The results of the two methods were not significantly different. The simulations based on Vector Autoregressive (VAR) method indicate the importance of growth of economic activities (growth of GDP) as a major determinant of change in deposits and change in loans. The view that banks choose to shrink their balance sheet activities during the capital shocks is consistent with the findings.
Published Version
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