Macro-Prudential Policy Instruments and Systemic-Risk Levels in Banking Sector of Deposit Money Banks in Nigeria

Nkeiruka Chinyere Forcha-Chigbo PhD

doi:10.56201/ijbfr.vol.12.no5.2026.pg147.162

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Macro-Prudential Policy Instruments and Systemic-Risk Levels in Banking Sector of Deposit Money Banks in Nigeria

Nkeiruka Chinyere Forcha-Chigbo PhD

Abstract

This study examined the relationship between macro-prudential policy instruments and systemic risk levels in Nigeria's banking sector, focusing on Deposit Money Banks . The research specifically investigated the impact of four key macro-prudential tools, Capital Conservation Buffer Level , Debt-to-Income Cap , Reserve Requirement Ratio , and Liquidity Coverage Ratio Requirement , on the stability of Nigeria's financial system. A quantitative research design was employed, utilizing secondary data from the Central Bank of Nigeria and Nigerian Deposit Insurance Corporation reports, covering the period from 2000 to 2024. The data was analyzed using Ordinary Least Squares regression, and diagnostic tests were performed to ensure the robustness of the results.The findings revealed that all four macro-prudential policy instruments had a significant impact on reducing systemic risks in Nigeria's banking sector. The CCBL was found to have a positive and significant relationship with the Systemic Risk Index , indicating that higher capital buffers contributed to the stability of financial institutions. Similarly, the DTIC, RRR, and LCRR were all shown to have positive effects on reducing systemic risk. These findings were consistent with both the Macro-Prudential Regulation Theory (Borio, 2003) and Systemic Risk Theory (Minsky, 1977), which emphasize the importance of regulatory tools in mitigating financial instability. Based on these results, the study recommended that regulators strengthen the enforcement of macro-prudential policies, particularly the CCBL and LCRR, to further enhance the resilience of the banking sector. It also suggested that policymakers continuously monitor and adjust these instruments to address emerging risks and maintain long-term financial stability. The findings contributed to the growing body of literature on financial regulation and systemic risk management, offering valuable insights for both academic and policy discussions in emerging economies like Nigeria.

Keywords

Capital Conservation Buffer LevelDebt-to-Income CapReserve Requirement RatioLiquidity Coverage Ratio Requirement and Systemic Risk Index

References

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Macro-Prudential Policy Instruments and Systemic-Risk Levels in Banking Sector of Deposit Money Banks in Nigeria

Abstract

Keywords

References

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