BASEL I MACRO-PRUDENTIAL TOOLS AND FINANCIAL SYSTEM STABILITY IN NIGERIA.

This study aimed to determine the level of post-consolidation financial stability in Nigeria and the effect of the Basel I Accord implementation on this stability. Secondary data on post-consolidation aggregate bank profits and liquidity (measures of financial stability) and post-consolidation aggregate capitalization of banks (made in compliance with Basel I Accord) obtained from the Statistical Bulletin, 2014 were analysed using the GARCH model. Research results show that there
exists volatility in bank profits (indicating long-term financial instability), withthe relationship between both variables positive; and there exists no volatility in aggregate bank liquidity indicating the existence of financial system stability (short-term/liquidity stability)with a significant relationship existing between Basel I Accord and the bank liquidity. These findings necessitate the immediate implementation of Basel II, II.5 and III with improved supervisory review process,
disclosures and market disciplines, enhanced minimum capital and liquidity requirements, enhanced supervisory process for firm-wide risk management and capital management and capital planning, enhanced risk disclosures, market discipline, required liquidity standard, leverage ratio and minimum total capital ratio to check excessive risk taking by DMBs, transmit the positive stability in liquidity to stability in profits of DMBs to improve Nigeria’s short-term and long-term
financial system stability, and shield the system from external shocks and cross-border contagion.